In option trading, "Call" refers to a type of contract that gives the buyer the right, but not the obligation, to buy an underlying asset at a specified price (the "strike price") within a specific time period (the "expiration"). Calls are typically purchased when an investor expects the price of the underlying asset to increase. For example, if an investor believes that the price of a stock will go up, they might buy a call option to lock in a purchase price at a lower level than the future market price12.
"Break-Even Price", also known as the Breakeven Point (BEP), is the price at which an investor in an option would neither gain nor lose money on their investment. It is calculated by adding the premium paid for the option to the strike price. If the underlying asset's price at expiration is equal to the break-even price, the investor has "broken even" because the cost of the option (including the premium and any other costs) has been covered by the proceeds from exercising the option45.
In essence, the break-even price is the point at which the cost of the option (including the premium) equals the potential gain or loss. If the underlying asset's price is above the break-even price at expiration, the investor has a profit. If it is below, the investor has a loss, but in no case will the loss exceed the premium paid for the option45.
10/6/2024 02:45pm
