In options trading, the break-even price is the point at which a strategy neither makes a profit nor incurs a loss. It's a critical reference for evaluating risk and reward, helping traders understand the minimum price movement needed to justify entering a position.
Break-even formulas vary by strategy. For example:
On a payoff diagram, break-even points are where the profit/loss curve intersects the zero line. These points often define the boundaries between risk and reward zones.
Always factor in commissions, slippage, and assignment risk when evaluating real-world break-even thresholds.