Definition
Breakeven is the price the underlying asset must reach at expiration for an option position to recover its full cost, leaving the trader with no gain and no loss. Below or above that point the position turns profitable or unprofitable depending on its direction.
For a single long call, breakeven equals the strike price plus the premium paid. For a single long put, it equals the strike price minus the premium paid. Spread strategies have breakeven points derived from their net debit or credit.
Why it matters
How it works
Calculating breakeven turns an abstract premium into a concrete price target. A trader who buys a call must ask whether the underlying can plausibly travel past strike plus premium before the option expires. If the required move is large relative to the time remaining, the strategy is a long shot. Breakeven also clarifies how time decay erodes a position: as expiration nears, the gap between the current price and breakeven matters more, because there is less time for a favorable move.