Chapter 06 · Section 6.1

Breakeven Point

Market Outlook   :  STABLE
Profit Potential :  limited
Loss Potential   :  practically unlimited
Breakeven Points :

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

a) ...the high exercise price minus the premium.
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) b and c
• f) b and d
  No. The breakeven point for the call is the HIGH exercise price PLUS the premiums paid, the breakeven point for the put is the LOW exercise price MINUS the premiums paid.

(Click here for help)