The underlying price at which an option position makes exactly zero at expiration, after accounting for premium paid or received.
For a long call it is strike plus debit; for a long put, strike minus debit; for a short put, strike minus credit. Multi-leg structures can have two breakevens, one on each side.
Breakeven is an expiration concept and is often misused as a target. Before expiration the position can be profitable well inside breakeven because extrinsic-value remains, and a risk-graph shows that far better than a single number does.
Example: buy the XYZ $50 call for $2.30. Breakeven at expiration is $52.30. But three days after entry, if XYZ is at $51.50 and implied-volatility rose, the call might trade at $2.90 — a profit at a price below the stated breakeven.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Buying a call: payoff at expiry. A 105-strike call bought for 3 loses that whole 3 if the price finishes at or below 105, breaks even at 108, then gains a dollar for every dollar higher. The loss is capped at the premium; the upside is not capped.Time decay of an option's value. The part of an option's price that is only time — its extrinsic value — drains away every day and must reach zero at expiry. The slide is gentle months out and steepest in the final weeks, which is what traders call theta.
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