The break-even point on an option is the price that the underlying asset has to hit in order to enable the option buyer (holder) to recover their premium.
So if a call option has a strike price of £2.50 and the up-front premium paid is 50p, the underlying share needs to rise to £3 (ignoring dealing costs and spreads) to hit breakeven. That's because the holder could then buy the share from the option writer for £2.50 and sell it on in the stockmarket for £3.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
Is property investment still as safe as houses? Why golden era could be overThe golden era of property is over and investors are better off in the stock market, new research suggests
-
What Santander’s takeover of TSB means for customersSantander is set to buy rival TSB for £2.65 billion. What does it mean for customers, and could we see the TSB brand disappear from the high street?
