Chapter 06 · Section 6.1

Breakeven Point

Market Outlook   :  BEARISH
Profit Potential : limited to 
                   the premium 
                   received
Loss Potential   : unlimited
Breakeven Point  :

The investor breaks even when the market price equals the exercise price:

b) minus the premium.
No. The premium is received by the call writer and acts as a cushion. As the price of the underlying increases, the cushion is eroded. The breakeven point occurs when the market price equals the exercise price plus the premium.

(Click here for help)