Chapter 06 · Section 6.1

Breakeven Point

Market Outlook  : VOLATILE
Profit Potential: limited on downside; 
                  unlimited on upside
Loss Potential  : limited
Breakeven Points:

The calls used in the construction of this backspread are priced as follows:
Long 110 call: $2.75
Short 100 call: $9.25
To which point must the market fall in order to breakeven?

a) +103.75
Yes. $2.75 was paid for each of the long calls and $9.25 was received from the short call. This gives a net premium of $3.75. ($9.25 - (2.75 x 2)). Continue
b) -106.50
c) -101.00
d) -96.25
e) -106.25

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