SIE Ready🎯 Options · Lesson 3 of 6 · 6 min
Breakeven, Max Gain and Max Loss
🧮 The SIE asks a few option math questions. Four positions and four short rules cover almost all of them.
💡 Key idea
Call breakeven = strike + premium; put breakeven = strike − premium. Buyers can lose only the premium; sellers can gain only the premium.
🧠 Why it matters
Breakeven: CALLS = strike + premium (Call Up); PUTS = strike − premium (Put Down). It is the same for buyer and writer. LONG CALL: max loss = premium; max gain unlimited. SHORT CALL (uncovered): max gain = premium; max loss unlimited. LONG PUT: max loss = premium; max gain = (strike − premium) × 100, reached if the stock falls to zero. SHORT PUT: max gain = premium; max loss = (strike − premium) × 100. Example: buy 1 XYZ 40 put at 3. Breakeven = 37. Max loss = $300. Max gain = (40 − 3) × 100 = $3,700. The writer of that put has the mirror image: max gain $300, max loss $3,700.
📈 In the real world
📉 Marisol, a fictional customer, writes an uncovered call at a 70 strike for a premium of 2 and collects $200. The stock jumps to 90 after a buyout rumor. She is assigned and must deliver shares she does not own, buying them at 90: a loss of (90 − 72) × 100 = $1,800. A short call has no ceiling on loss.
📌 Takeaways
- Call BE = strike + premium; Put BE = strike − premium
- Buyer's max loss and seller's max gain = the premium
- Short uncovered call = unlimited risk; long put max gain = BE × 100
📖 Terms in this lesson
Breakeven (options): The stock price where a position neither gains nor loses: strike plus premium for calls, strike minus premium for puts.
✅ Test yourself
A customer buys 1 call with a 55 strike at a premium of 2. What is the breakeven?
- 53
- 57
- 55
- 59
Answer: B · 57
Call breakeven = strike + premium = 55 + 2 = 57. 53 is the put formula (strike − premium); 55 ignores the premium paid.
Which position has unlimited maximum loss?
- Short uncovered call
- Long put
- Short put
- Long call
Answer: A · Short uncovered call
A stock price has no upper limit, so a writer of an uncovered call can lose an unlimited amount. A short put's loss is capped because the stock cannot fall below zero; long options can lose only the premium.
A customer writes 1 put with a 25 strike at 2. What is the maximum loss?
- $2,500
- $2,300
- $2,700
- $200
Answer: B · $2,300
Short put max loss = (strike − premium) × 100 = (25 − 2) × 100 = $2,300, reached if the stock falls to zero. $2,500 forgets the premium received; $200 is the writer's maximum gain.
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