Breakeven Point - BEP
Categories: Accounting, Company Management
The equilibrium point at which inflows equal outflows for a net zero impact; for options trading, any premium paid must also be taken into account.
Bobby purchased a call option, giving him the right to buy one share of OMG Corp at $60. He paid $2 (the “premium”) for this option, so his breakeven point would be reached when the shares trade at $62 in the open market, at which point he can exercise his right to buy the stock at $60, and then sell it into the market at $62, netting him $2 and offsetting his outlay for the premium.
Bobby is now shopping for yachts.