Options
Option break-even
The price at which your option actually starts winning, and what it can cost you.
What it is for
To know where you stop losing, which is not the strike. It is the sum most people get wrong the first time, and it explains "I called the direction and lost money".
How to use it
- 1Pick type and whether you buy or sell it: the four combinations carry very different risks.
- 2Premium goes in per unit of the underlying, as the chain quotes it. The multiplier turns it into money.
- 3This calculation is AT EXPIRATION. Before that the position is worth something else, because time value remains.
How to read it
On a long call, break-even is the strike PLUS the premium. Between the strike and that point the option is already "in the money" and you are still losing: that band is what you paid.
When maximum loss shows as "no known limit" it is not a calculation failure: a naked short call has no ceiling. That is undefined risk, and position size should be decided by that, not by the odds of being right.
The distance to the strike says how far the underlying must move just to break even. If it is more than a normal month's move, the trade needs something exceptional to work.
The terms that appear here
All the calculators
- Position sizeHow many units you can open without exceeding the risk you decided on.
- ExpectancyWhether your method makes money long term, and from what win rate it starts to.
- Compound interestWhat your monthly saving turns into, and how much of it you actually put in.
- Emergency fundHow much cushion you need, how much is missing and how long it will take.