Options Glossary

Glossary: Break-Even Price

Last Updated: March 18, 2017

Glossary

Break-Even Price

What Does Break-Even Price Mean in Options Trading?

The Break-Even Price is the price at expiration, where a single contract or a spread will have neither any loss or gain for both the option(s) buyer and the option(s) seller.
For put contracts, this is the strike price less the option price at position entry.
For call contracts, the break-even price is equal to the strike price plus the option price at position entry. It is more complicated to calculate the break-even price for spreads and there may be multiple break-even prices depending on the unique combination of calls, puts, and stock.
When a spread has more than one break even price, this criterion will look at the break-even prices which is closest to the current price of the underlying (stock).

Synonyms:
break even price

How to Use In the Brutus Options Ranker

The Break Even Price may be an important consideration in your Brutus Options Ranker Strategy.
You can add the Break Even Price to your Strategy Tree and choose to minimize, maximize or target the criteria to a specific value.
When used properly, this is a similar criterion to "Moneyness", i.e., how far out-of-the-money (OTM) or how far in-the-money (ITM) the contract or spread is.  Note, that if you choose to maximize the distance out the money your spread or option is, then you will take on more notional risk for the same potential return.  For this reason, it is advised to include risk criteria, for example, notional risk, in your Brutus Options Ranker Strategy as well.
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