A break-even point is an amount in dollars or units that an asset must be sold to cover its acquisition, maintenance, production, and supply costs.
The break-even price for a home is the price at which the owner can cover the purchase costs, bank loan interest, accident insurance, real estate tax, maintenance, renovation, administrative costs, and real estate commission. At this price, the owner has not predicted any profit for himself, but by selling at that price, he will not suffer any loss.
Break-even point is relevant in management accounting, as an increase in sales volume means a decrease in the price of production, because the costs associated with more products are divided.
In the financial markets, a break-even point in a stock would be the price an investor purchases the stock. If the price of the stock remains the same as the purchase price for a buyer, like $50, for example, the investor will be at break-even point because they would not be making or losing any money. If the stock price is more than $50, the investor would be making a profit, and if the stock price dips below $50, the investor would be losing money.
For trading options, the break-even point factors in the options’ strike price and premium paid. The break-even point is the market price of an underlying asset that would allow an investor to not lose money when the option is exercised. Normally, options’ break-even points do not include commission costs, although those fees can be factored in.
Break-even Point Put Option = strike price - premium paid
Break-even Point Call Option = strike price + premium paid