BREAK-EVEN

Refers to a price at which an option's cost is equal to the proceeds acquired by exercising the option. The buyer of a call pays a premium. His break-even point is calculated by adding the premium paid to the call's strike price. For example, if you purchase a May 58 cotton call for 2.25¢ per pound when May cotton futures are at 59.48¢/lb., the break-even price is 60.25¢/lb. (58.00¢/lb. + 2.25¢/lb. = 60.25¢/lb.). For a put purchaser, the break-even point is calculated by subtracting the premium paid from the put's strike price. Please note that, for puts, you do not exercise unless the futures price is below the break-even point.