Explain breakeven....

Bushwacked9

Bushwacked9

Does break even only apply on the last day when the option expires?

The below has 4 days left and I'm down ~150. How do I take into consideration of time decay and breakeven ... For me I would think that I'm still ahead of the breakeven, so I should be green since breakeven is 303.87 I would assume I'd be a few dollars green, not 150 red.

What am I missing ....

20191028_185546.jpg
 
The market is telling you that it's highly likely to finish Friday at/above SPY 305.

Your top-side expiration BE will be $305 + [the premium you received from the iron condor].

Between now and expiration, the market still has to chew through some remaining time value on the whole IC.
 
Ah I see. So this takes into account the probability of it hitting ITM based on current info and changes the P/L to match that probability?

So if things change and let's say it stays just outside the 305 call and expires OTM... The P/L still wouldn't be very good in the green?
 
• I have no idea what "it" is, in your statements, but
• No, P/L is not based on close, it is based on [Entry-Exit] > $0.
"Exit" MAY have some degree of probabilistic outcome involved (typical for options, while the underlying is deterministic: it is what it is...) But...
You have given no indication of what your entry was.
This is the same for BE, remember.

Google is your friend here. Time to spend time, with a search on different break-evens.
 
Expiration break even is easy to determine. It's the short put strike less the total credit received and the short call plus the total credit received.

Prior to expiration you need an option pricing model/program to calculate the projected values of each option on some later date (assuming you're not changing the implied volatility) and it will depict what the break even points will be. Initially they will be wider than the body but as time decay works its magic, they will narrow to those in my first sentence.
 
You must log in or register to reply here.
Back
Top