Payoff Lab: Breakeven
Absolute covered-call breakeven and the separate price where holding begins to outperform.
#Absolute PnL breakeven
Covered-call breakeven = S₀ − PBelow strike, covered-call value is S_T + P. Setting that equal to entry price S₀ gives entry price minus net premium. Costs reduce premium and raise the effective breakeven.
| Illustrative input | Value |
|---|---|
| Entry price S₀ | $180 |
| Premium P | $4 |
| Simplified breakeven | $176 |
#Breakeven versus holding
Relative difference = P − max(S_T − K, 0)The covered call leads holding by premium at or below strike. Above strike, that lead falls dollar for dollar. The two are equal at S_T = K + P.
#Limits of the formula
- Breakeven is not a capital floor.
- Closing before expiry uses market value, not terminal intrinsic value.
- Costs, Stock Token basis and multiplier changes can alter realized economics.