Breakeven Price for Options

The breakeven price is the underlying price at expiration at which the option’s payoff exactly recovers what you paid for it — the point where the holder neither gains nor loses money.

Puts Breakeven

$$\text{Puts Breakeven Price}=\text{Strike Price}-\frac{\text{Contract Cost}}{\text{Number of Shares Under Control}}$$

Calls Breakeven

$$\text{Calls Breakeven Price}=\text{Strike Price}+\frac{\text{Contract Cost}}{\text{Number of Shares Under Control}}$$

Example calculations:

Put Option

 

• Strike Price: $52
• Contract Cost: $2000
• Number of Shares: 1000

$$\text{Breakeven Price}=52-\frac{2000}{1000}=52-2=50$$

So, the breakeven price per share is $50.

Call Option

 

• Strike Price: $60
• Contract Cost: $200
• Number of Shares: 100

$$\text{Breakeven Price}=60+\frac{200}{100}=60+2=62$$

Thus, the breakeven price per share is $62.

One caveat before you use these numbers: they are at-expiration constructs. Before expiry the option still carries time value, so the position can be closed at a profit well before the underlying reaches its breakeven — which, per the sell-don’t-exercise guidance above, is the normal exit. Treat the breakeven as the worst-case boundary for holding to expiration, not the target price required for success.

When calculating breakeven prices, always include all transaction costs in the contract cost. These costs encompass the option premium and potentially significant broker commissions. Commissions are paid on the option contract itself and may also be incurred during the execution or sale of the option contract.

For instance, in the put option example, if the stock price drops below $50, selling 1000 shares will incur additional commission costs. Price the whole round trip, assignment included, before you put the trade on.