Formula map
Options breakeven formulas
Breakeven is the expiration price where the strategy's simplified P/L is zero before costs. It is useful, but it is not the full trade plan.
StrategyBreakevenMax lossRisk note
Long callStrike + premiumPremium paidNeeds upside move and time/volatility can matter before expiration.
Long putStrike - premiumPremium paidDownside move must overcome premium and friction.
Covered callShare basis - premiumStock downside less premiumUpside is capped if assigned; downside remains stock-like.
Cash-secured putStrike - premiumStrike less premium, to zeroAssignment can create stock ownership at an unfavorable basis.
Vertical spreadLong strike plus/minus net debitNet debit paidDefined risk and defined reward depend on spread width.
Why breakeven can mislead
A position can be above breakeven at expiration and still be unattractive before expiration because of liquidity, implied volatility, time decay, or sizing. Breakeven also ignores opportunity cost and stress.
Primary reading: OIC Profit and Loss Simulator · FINRA options overview · SEC Investor Bulletin on options · OIC options pricing overview