Break-even

Q: Long put at K = 80, premiumP =$ 6. Break-even is:

74. Put break-even= K - P = 80 - 6 = 74. The stock must close below $74 at expiry for the put holder to profit.

Q: A trader buys a call on ANZ at K =30 forC = 1. At expiry S_T =$30.50. The profit per share is:

-0.50. Payoff= \max(30.50 - 30, 0) = 0.50. Profit = 0.50 - 1.00 = -0.50. The stock cleared the strike but not the break-even of31, so the position is still down $0.50.

The break-even price of an option strategy is the underlying value $S_T$ at expiry where total profit equals zero. For a long call, $S_T = K + C$ . For a long put, $S_T = K - P$ . Above (call) or below (put) break-even, the position turns profitable. Inside that band the buyer loses, capped at the premium paid. Break-even is the simplest decision metric for sizing whether a directional view is large enough to be worth paying for.

Try it yourself

Payoff at expiry

Pick one position and watch its expiry profile across the underlying price S_T. The dashed line is gross payoff; the solid line is profit after premium.

Try this:

Breakeven 55.00Max profit ∞Max loss −A$5Moneyness ITM

Strike KK = 50

Premiumprem = 5

Current spotS = 52

PREMIUM AT SPOT = 52

Intrinsic valueA$2

Time valueA$3

PremiumA$5

Why it matters

Break-even tells you how far the market has to move for your trade to earn back its cost. Buying a call at $K$ is not bullish enough on its own. You need the underlying to clear $K$ by more than the premium, because that premium is sunk the moment you trade. A trader who sees a stock around $K + C$ at expiry has merely recovered the premium and has nothing to show for it.

Before you read on — recall

Long put at $K =$ $80, premium $P =$ 6. Break-even is:

Formulas

Long call break-even

S_T^* = K + C

Add the premium to the strike. Profit is positive whenever

S_T > S_T^*

Long put break-even

S_T^* = K - P

Subtract the premium from the strike. Profit is positive whenever

S_T < S_T^*

Worked examples

Scenario

Long call on Macquarie with $K =$ $200 and premium $C =$ $4. Where does it break even?

Solution

Break-even $= 200 + 4 =$ $204. The stock must close above $204 at expiry to make money. If Macquarie closes at $203, the call is worth $\max(203 - 200, 0) =$ $3, less than the $4 premium, so the trader still loses $1 per share.

Scenario

Long put on the S&P 500 ETF with $K =$ $480 and premium $P =$ $6. Where does it break even?

Solution

Break-even $= 480 - 6 =$ $474. If the ETF closes at $470, the put pays $\max(480 - 470, 0) =$ $10, and profit = 10 - 6 = 4. At $474 the position simply recovers the premium. Above $480 the option expires worthless and the loss is the full $6 premium.

Common mistakes

✗Break-even equals the strike. Break-even is strike plus premium for calls and strike minus premium for puts. Forgetting the premium is one of the most common errors when evaluating directional option trades.
✗Break-even is the only thing that matters. It ignores the probability of reaching that price and the risk of partial loss along the way. A high implied volatility option may have a wide break-even gap and a low chance of profit, even if the formula looks attractive.
✗Break-even applies before expiry. It is an expiry-date metric. Before expiry, a position can be profitable below the call break-even because of remaining time value, or unprofitable above it after a sharp implied-volatility drop.

Revision bullets

•Call BE $= K + C$
•Put BE $= K - P$
•Move must clear the premium to profit
•Defines the profit threshold at expiry
•Says nothing about probability of reaching it

Quick check

Long put at $K =$ $80, premium $P =$ 6. Break-even is:

A trader buys a call on ANZ at $K =$ $30 for $C =$ $1. At expiry $S_T =$ $30.50. The profit per share is:

Connected topics

Premium Moneyness Long Call Long Put Combinations & Spreads

More in Options

Options 101 Call Put Am. vs Eu.Intrinsic Time Value Short Call Short Put

In learning paths

Options Path

Sources

Hull (2022), §12.2
Hull, John C. Options, Futures, and Other Derivatives. 11th ed. Pearson, 2022. ISBN 978-0-13-693997-9.
Chapter 12 develops profit and loss profiles for option strategies, including the break-even point for single-leg trades.
McMillan (2012), Ch. 3
McMillan, Lawrence G. Options as a Strategic Investment. 5th ed. Prentice Hall Press, 2012. ISBN 978-0-7352-0466-2.
Classic strategy reference. Includes worked break-even tables for long call, long put, and combinations.
Cboe Options Institute Glossary
Cboe Global Markets. Options Trading Glossary. Cboe Options Institute, accessed 2026.
Industry definition of break-even for listed equity option strategies.
ASX Options Strategies Hub
Australian Securities Exchange. ASX Options Strategies. ASX Investor Education, accessed 2026.
Local teaching reference for break-even calculations applied to ASX-listed equity options.

How to cite this page

Dr. Phil's Quant Lab. (2026). Break-even. Derivatives Atlas. https://phucnguyenvan.com/concept/breakeven