From Theory To Practice

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The Better Break-Even?

From Theory To Practice

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

As we look to monitor the size and manage the risk of our trades, a given strategy’s break-even point is a crucial element. The break-even point effectively marks the spot where if the underlying were at this point at expiration, we would break-even on the trade. This is especially important with undefined-risk trades, where our maximum losses are not necessarily capped. So today, we compare and contrast two of our favorite undefined-risk strategies, the Short Straddle and the Short Strangle, in an effort to learn which one offers a more favorable break-even point.

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