In general, when gains or revenue earned equals the money spent to earn the gains or revenue, you’ve hit the breakeven point. In options, the breakeven point is where the market price of the underlying asset is such that the option owner will not suffer a loss if he exercises the option. For a call option, the breakeven point is where the market price equals the strike price plus the cost of the option. For a put option, the breakeven point is where the market price equals the strike price minus the cost of the option. In the business world, the breakeven point comes when the company has earned enough revenue to cover its fixed, overhead expenses. The formula for determining the breakeven point is: BEP = Total Overhead Expenses/Gross Margin Percentage. AAA Widgets has $2 million in overhead expenses. AAA sells a widget for $10. The direct cost per widget is $6 per unit. This is a 40% gross margin. Thus AAA must have $5 million is sales in order to reach its breakeven point. That means that AAA will have to sell 500,000 widgets to break even. For a cash flow version of the breakeven point, remove the non-cash expenses, such as depreciation and amortization, from total overhead expenses. By making this calculation, managers know the amount of cash they need to earn over a given time period in order to pay the company’s bills.