Suppose you purchase one IBM May 100 call contract at $5 and write one IBM May 105 call contract at $2.What is the lowest stock price at which you can break even?
A) $101.
B) $102.
C) $103.
D) $104.
E) none of these.

Question

Quizplus · Accepted Answer

To calculate the break-even point, we need to add the premium received for writing the May 105 call to the cost of purchasing the May 100 call.

Break-even point = Cost of May 100 call - Premium received for writing May 105 call 
= $5 - $2 
= $3

Therefore, the break-even price for IBM is $100 + $3 = $103. Any price above $103 will result in a profit, and any price below $103 will result in a loss.

Suppose You Purchase One IBM May 100 Call Contract at $5