Break-even, maximum profit, and maximum loss

Break-even, maximum profit, and maximum loss are the core payoff measures used to compare option strategies in cash terms. The framework relies on them to separate defined-risk structures from stock-linked ones.

Break-even is the price level at which a position neither profits nor loses at expiry, maximum profit is the most the structure can earn under its payoff rules, and maximum loss is the most it can lose under those same rules. In the article, these measures are used to keep strategy selection objective. Covered calls and cash-secured puts can show clear break-even points, but they do not cap downside in the same way as defined-risk spreads because they retain substantial stock-linked exposure or purchase obligation. Vertical spreads and iron condors, by contrast, allow maximum loss to be calculated at entry if the spread remains intact. This makes them more suitable when the account requires a hard cash loss limit before the trade is placed.

• What Is an Options Spread Trade?
• ITM vs. OTM Options for Spread Traders
• Secured Put / Cash-Secured Put