Let us see what is meant by the Break-Even point. 

The break-even point is the price at which a business or trade neither makes a profit nor incurs a loss. To calculate the break-even point for options, three factors are considered:

1. Option Premium: The cost of buying the option contract.

2. Strike Price: The price at which the underlying asset can be bought or sold.

3. Transaction Costs: Brokerage fees and taxes associated with the trade.

By considering these factors, the break-even point is determined, which is the price at which the trade becomes profitable.

Let us see the break-even point for a call option holder. 

If one were to buy an ITC November call with a strike price of Rs.200 at a premium of Rs.8.50 and the transaction cost is Rs.1.50, then the break-even price will be Rs,200 + Rs.8.50 + Rs.1.50 = Rs.210 per share. 

Break-Even Point for Call Option Holder:

To determine the potential profit point, use the formula:

Break-even price = Premium + Strike price + Transaction costs

Example:

• ITC November call option

• Strike price: Rs. 200

• Premium: Rs. 8.50

• Transaction costs: Rs. 1.50

Break-even price = Rs. 200 + Rs. 8.50 + Rs. 1.50 = Rs. 210

To profit, ITC shares must exceed Rs. 210. The maximum loss is limited to the premium and transaction costs, totaling Rs. 10 per share.

Now let us see the break-even point for a put option holder. 

The following formula can be applied to know whether your trade has the potential to make a profit. 

Break-even price = Strike price - Premium cost - Brokerage and transaction cost. 

If one were to buy ITC November put with a strike price of Rs.200 at a premium of 

Rs.8.50 and the transaction cost is Rs.1.50, then the break-even price will be Rs,200 - Rs.8.50 - Rs.1.50 = Rs.190 per share. 

Break-Even Point for Put Option Holder:

To determine the potential profit point, use the formula:

Break-even price = Strike price - Premium - Transaction costs

Example:

• ITC November put option

• Strike price: Rs. 200

• Premium: Rs. 8.50

• Transaction costs: Rs. 1.50

Break-even price = Rs. 200 - Rs. 8.50 - Rs. 1.50 = Rs. 190

To profit, ITC shares must fall below Rs. 190.

Key Points:

• To profit from the put option, ITC shares must fall below Rs. 190.

• Maximum potential loss is limited to the premium and transaction costs, totaling Rs. 10 per share.

• Even if an option is in-the-money, it must cross the break-even point to generate a profit.

In other words, being in the money doesn't necessarily mean a profit; the option must exceed the break-even point to result in a profitable trade.