Options Break-Even Price Explained: How to Calculate Your True Break-Even on Any Trade

Learn how to calculate the options break-even price for calls, puts, covered calls, and cash-secured puts with simple formulas and examples.

Suppose you come across what appears to be a good call option, the stock is at $100, the strike price is $105, and the option costs $3. You could then reason to yourself, "As long as the stock price rises above $105, I'll make a profit." But that would be incorrect. The strike price of $105 indicates when the call option becomes in the money; it doesn't show you when your whole trade has made back the premium you paid, for that you have to know the options break-even price. Here, the stock would have to reach $108 at expiry in order for the long call to break even, taking into account commissions and other trading costs. The extra $3 is the premium you paid for the option. Although this difference may appear minor, it can make a significant impact when assessing the profit and loss on options. The good news is that the basic calculation is simple. In the case of a long call you usually add the premium to the strike price, while for a long put you subtract the premium from the strike price. Traders who are using covered calls or cash-secured puts should also take into account the premium received and their effective or adjusted cost basis. If you don't want to work out these calculations by hand each time, you can use an options break-even calculator to quickly check the figure. SecurePutCalls offers a dedicated Break-Even Calculator that can be used as a practical reference when analyzing an options trade. The important point is simple: break-even is a starting reference, not a guarantee of profit. What Is an Options Break-Even Price? The break-even price for an option is the price of the underlying asset at which the options position will have approximately zero profit or loss at expiry, prior to taking into account commissions, fees, taxes, and any other transaction costs. Imagine break-even as the line that divides profit from loss. With a long call the share price generally has to go above the strike price by a sufficient amount in order to make up the premium paid, and with a long put the price of the share generally has to drop below the strike price by a sufficient amount in order to recover the premium paid. The specific calculation will vary according to the strategy since those who buy options pay the premiums while those who sell them receive them. The educational materials produced by the Options Industry Council do in fact show the standard relationship concerning long calls, namely that the break-even point at expiration is equal to the strike price plus the premium paid. It is important to separate several terms that traders often mix together: For standard U.S. equity options, one contract normally represents 100 shares , although adjusted contracts can have different deliverables after certain corporate actions. That means a $3 option premium generally represents $300 per standard contract, not $3 total. Strike Price vs. Premium vs. Break-Even Suppose you buy a $105 call for $3. The strike price is $105. The premium is $3 per sha