Breakeven
In investing and trading, the breakeven point is the price level at which the total cost of an investment is covered, meaning any move beyond that point would result in a profit, and any move below would result in a loss.
Breakeven applies across different types of investments (such as shares, options, and structured products) and is calculated using the initial purchase price, plus any applicable fees and charges. In the case of options, the breakeven includes the premium paid.
In options trading:
- For a call option, the breakeven is the strike price plus the premium paid
- For a put option, it’s the strike price minus the premium paid
Understanding the breakeven level may assist investors in assessing how far the underlying asset’s price would need to move before a position covers its costs.
Why breakeven matters to investors
Understanding the breakeven point may help investors:
- Assess the relationship between cost and potential return
- Compare the pricing structure of different investments or strategies
- Understand risk exposure, particularly when using options or leveraged products
- Evaluate how much price movement would be required for a position to cover its costs
Breakeven analysis is a tool for informational purposes only. It does not indicate likelihood of profit or loss and should not be relied upon as a sole basis for any investment decision.