I bought an option at 13 rs - 1 lot - 2000 shares, one month back.
Option price started decreasing afterwards and I did not square off.
Now the expiry is only 2 days ahead and the option is still OTM with premium price close to 0.3 rupees.
Strike 310 current underlying 290. Call Option
Is it a good idea that I buy 8000 or so shares at 0.3 rupees and average my buying price to 2.75 rupees. 8000 shares cost only 2400 which is my risk money to average the price from 13 to 2.75.
If price comes close to 3 rupees I can sell all 10000 shares. (5 lots)
Nopes, averaging downwards is probably one of the worst things a trader can do. It basically becomes a gamble to get out of the trouble, and the thing with gambling is that your odds coming correct on the other side reduces considerably.
Throwing good money at bad, is not a good idea.
If you think that prices will move up (assuming you have bought calls), you rather buy an option that is closer to the current market price.
No Friend, don’t go for that, if you do this, then you would need to get underlying stock to reach 312.75 to touch break even, which is 7.8% rise in stock. Probability of getting this rise in expiry week is very less. Save your 2400 Rs for your next successful trade.!
Close your position asap, otherwise you would need to pay some taxes extra, if you let it to expire worthless.
Thanks Nithin,
Tried this out, by averaging down.
Guess what, loss additional 5k in this mess. Lesson learnt the hard way stays forever in my mind. Thanks again.
If i let it expire worthless, why would i pay taxes, since the option is already OTM? Pls clarify?
Also i believe even if i could not recover my initial 26000, i would recover my risk money 2400, if i square off at 0.6 rupees, 4000 shares. In that way is it non ok?
i believe 0.6 rupees in premium is achievable!