What Is Breakeven Point (BEP)

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What Is Breakeven Point?

Breakeven Point is associated with a investment or trade that is obtained by analysing the market prices of assets to its intentional/original cost. The Breakeven point of a trade is reached when the prices of the two assets are equal.

In accounting, the formula for breakeven point is pre determined by dividing the total costs associated with the productions cost by the revenue per individual units Minus the variable costs per unit. In this situation, fixed costs refers to assets that doesn't change depending on the number of units sold. In summary, the Breakeven point is the production level where the total revenues for a products equates to the total expenses.

Understanding Breakeven Points (BEPs)

Breakeven points are applied to various contexts. For example, the Breakeven point in a property would be based on how much money the owner would need to generate from the sale to exactly counterbalance the net purchase prices, with the closing insurance, taxes, costs, interest and fees paid on the mortgage including costs related to maintenance and improvements. With that price, the owner would break even the price without losing or gaining Money.

The BEPs strategy are mostly used by traders to figure out the price a security must attain to accurately cover all costs associated with trade including management fees, taxes, commissions etc. The Breakeven of a company is supposedly calculated by using fixed costs and dividing it by the gross profit margin percentage.

Different Types Of Breakeven Point (BEP)
There are different types of Breakeven Points used by traders, below are some of the majors ones:

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• Stock Market Breakeven Points

Assume an investor buys Telsa stock at $200. That is now his breakeven point on the trade. If the price moves above $200, the investor is making money. If the stock drops below $200, they are losing money.

If the price stays right at $200, they are at the BEP, because they are not making or losing anything.

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• Call Options Trade Breakeven Points

Assuming that an investor pays $10 premium for a Google Stock call option with a $210 strike price. That exactly means that the investor has the right to buy 100 shares of Google at $210 per share at any time before the options expire. The breakeven point for option is the $210 strike price plus the $10 call premium, or $220. If the stock begins to trade below this, the benefit of the option hasn't exceeded it's cost.

If the stock begins to trade at $240 per share, the call owner buys Google at $210 and sells the securities at the $240 market price. The profit is $240 minus the $220 Breakeven price which equals to $20 per share.

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• Put Option Breakeven Point

Imagine an investor pays a $10 premium for Apple put option with a $210 strike price. This allows the put buyer to sell 100 shares of Apple stock at $210 per share Until the Options expiration date. The put position Breakeven price is $210 minus the $10 premium or $200. If the stock is still trading above the initial price, the benefits of the option hasn't exceeded it's cost.

If the stock is still trading at a market price of $190, for example the trader has made a profit of $10 (Breakeven of $200 Minus the current market price of $190).

Conclusion

That concludes everything about my article on Breakeven Point In trading, I hope you enjoyed reading it.

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