Chapter 06 · Section 6.1

Breakeven Point

Market Outlook   :  VOLATILE
Profit Potential :  practically 
                    unlimited
Loss Potential   :  limited to 
                    the sum of 
                    the premiums
Breakeven Point  :

The breakeven points occur when market price at expiration equals...

a) ...the high exercise price minus the premium.
No. Premium are paid for both the call and the put. Thus, one simply calculates the breakeven for each, taking into account that two premiums are paid out.
b) ...the high exercise price plus the premium.
c) ...the low exercise price minus the premium.
d) ...the low exercise price plus the premium.
e) a and d
f) b and c

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