Option Investor
Educational Article

Calculating the Breakeven for a call or Put purchase

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The basic of any call or put buying strategy comes down to several unique, yet consistently obvious economic issues. How much you are investing or risking, how much you stand to profit or gain and probably the most important factor to be cognitive of is calculating your breakeven point or points in any transaction.

Calculating The Long Call breakeven price

The calculation of the breakeven for a long call purchase is relatively easy. The formula is as follows:
The Breakeven of a long call is the price paid for the Long Call plus the strike price of the option you are purchasing. Long Call + Long Call Strike Price = Breakeven price

FIGURE 1-1: EXAMPLES OF LONG CALL BREAKEVEN PRICES

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Calculating The Long Put breakeven price

The calculation of the breakeven for a long put purchase is the opposite. The formula is as follows:
The Breakeven of a long Put is the strike price of the put you are purchasing minus the price paid for the Long put option you are purchasing. Long Put Strike Price - Long Put Premium = Breakeven price

FIGURE 2-2: EXAMPLES OF LONG PUT BREAKEVEN PRICES


 

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