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The Break-even Point in Your Binary Option Strategy

The BREAK-EVEN Point of an option indicates that price level of underlying that in that moment allows you to close the transaction without a profit and without a loss, exactly break even.

The Breakeven point is calculated as the sum between the strike price and the premium if the purchased option is a call, or as the difference between the strike price and premium if the option is a put.

The Breakeven point of binary options is calculated in a different way, this is because an investment in binary options always pays a Fixed Profit. Thus, the Breakeven point of binary options is achieved when the price of the underlying at maturity is the same as the strike price of the option purchased. In short, if they match the purchase price and the price at maturity of the option.

However, since the profit or loss of any investment in binary options are fixed, it is convenient to calculate the Breakeven for a set of operations.

Therefore, to calculate the breakeven point, you have to add up all the revenues obtained from a number of operations and subtracting all your invested capital for such transactions. If this difference is equal to zero, then you have reached the breakeven point. If the difference is positive it means that the revenues are greater than the capital invested and the investor is in active.

The Breakeven point is a very important tool because it allows you to understand how many tasks you have to close in positive to recover at least the invested capital.

Add now the Break-Even Point to your Strategy!

Beyond the ability to correctly predict the performance of the stock, assumes remarkable importance both the percentage of profit recognized by the broker in case of success, and the rate of reimbursement on the loss in case of incorrect prediction.

Is evident, therefore, that if on equal of conditions a broker pays 85%, while another broker recognizes for the same operation 80%, at least under this point of view the first broker is more convenient than the second.

We calculate now some hypotheses of breakeven depending on the broker and the typical return on investment policies and reimbursement of the loss. Loss refund

Reimbursement Return on success Breakeven % % Success on the attempts
0%  70%  58,82%   10 su 17
0% 75%  57,14%  10 su 17,5
0% 80% 55,56%  10 su 18
0% 85% 54,05%  10 su 18,5
0% 90% 52,63%  10 su 19
15% 70% 54,84%  10 su 18,2
0% 150% 40%  10 su 25
0% 250% 28,56%  10 su 35
0% 300% 25%  10 su 40
0% 350% 22,22%  10 su 45

We explain the table:

In the first box we have included the Reimbursement on the losses. Some brokers reimburse in fact, only determined binary options, a percentage of the investment closed at a loss. In most of cases, if the reimbursement is provided, the percentage of profit recognized is normally lower.

The Return on success indicates the profit you get closing the transaction in positive.

The Breakeven point expressed in percentage terms indicates, compared to the total investment, the percentage to which of these we have to close in profit to reach a break even situation.

The Successes on the attempts box indicates the number of positive investments we need to realize on the total of attempts to reach a break-even situation.

From our calculations emerge some very interesting considerations:

For transactions with performance between 70% and 90% without refund on losses, the percentage of transactions to close in positive order to remain in break even is always lower than 60%.
In particular for investments that have an economic return of 80% -85% (in fact, many brokers charge this percentage of profit), just close successfully only 4% – 5% of investments in more (relative to total) to obtain the breakeven.

Basically, since according to the calculation of probabilities, if we invested randomly we'd have the 50% of chance to close an investment in positive, that 4-5% more to get at least the draw will be the result of the capacity of analysis and forecast of the investor.

Another result to emphasize is the investment with return of 70%, but with repayment on losses of 15%. Although at first sight it might not be very convenient, it is actually a situation comparable to that of the broker that offers a profit of 85% without refund on losses.

In the first case, the percentage to reach the breakeven is of 54,84% – in the second case of the 54,05%.

In the table we have also included profits between 150% and 350%. These returns are recognized only for some types of binary options, in particular for "Touch or No Touch" and "Range". Is needless to say that for these options the breakeven is reached with a lower number of investments closed in profit, although, it is more difficult to make correct predictions.

For any further information do not hesitate to contact us at info@guidetrading.net

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