Calculate the breakeven price for calls and puts, including premium paid or received.
For a long call option, the breakeven price is the strike price plus the premium paid. For example, if you buy a $150 call and pay $3.00 in premium, your breakeven at expiration is $153. The stock must trade above this level for the trade to be profitable.
For a long put option, the breakeven price is the strike price minus the premium paid. If you buy a $150 put for $4.00, your breakeven at expiration is $146. The stock must fall below this level for the trade to be profitable.
The breakeven price tells you exactly how much the underlying asset needs to move before your option trade turns a profit. Without knowing this, you can't accurately assess the probability of success or set a realistic price target for your trade.
The breakeven price at expiration is fixed once you enter the trade (strike + premium paid). However, intraday the option's market value fluctuates with the underlying, so your effective breakeven in terms of P&L can change if you plan to exit before expiration.
For a put seller (cash-secured put or naked put), the breakeven is the strike price minus the premium received. For a call seller (covered call or naked call), the breakeven is the strike price plus the premium received. Sellers profit if the stock stays on the favorable side of this level.