An option breakeven is the price where a given option breaks even at expiration based on its most recent bid/ask mean. For example, a 100 call option with a bid/ask mean of $10 would break even at $110. The option breakeven is a useful metric because it provides insight as to the pricing tension between the buyer and the seller. The option breakevens in this data set are weighted by their relative open interests at the end of the day. This is based on the premise that an investor would generally stay long a given option because they expect its value to increase, whereas the short investor would generally expect it to decline. There are three kinds of breakevens provided in this data set:
- All (“OptionBreakeven”, such as OptionBreakeven10, etc) is calculated using both calls and puts.
- Call (“CallBreakeven”, such as CallBreakeven10, etc) is calculated using only calls.
- Put (“PutBreakeven”, such as PutBreakeven10, etc) is calculated using only puts.
For example, suppose the option chain looks like this for a given expiration:
| Option | Bid/Ask Mean | Breakeven | Open Interest | Weighted Sum |
|---|---|---|---|---|
| 90 Call | 17 | 107 | 10 | 1070 |
| 100 Call | 11 | 111 | 7 | 777 |
| 110 Call | 3 | 113 | 0 | 0 |
| 90 Put | 2 | 88 | 1 | 88 |
| 100 Put | 8 | 92 | 2 | 184 |
| 110 Put | 15 | 95 | 2 | 190 |
The All Breakeven for this expiration would be (1070 + 777 + 0 + 88 + 184 + 190) / (10 + 7 + 0 + 1 + 2 + 2) = 104.95.
The Call Breakeven for this expiration would be (1070 + 777 + 0) / (10 + 7 + 0) = 108.65.
The Put Breakeven for this expiration would be (88 + 184 + 190) / (1 + 2 + 2) = 92.4.
The video below discusses an example.