Ask the Institute

DATE: November 12, 2012

QUESTION:

Can you please explain what the reference "Averaging Down" means?

ANSWER:
"Averaging Down," or as it is sometimes called, "Dollar-Cost Averaging," is a technique in which an option trader buys more of a security at a lower price than the price at which an initial quantity of the security was purchased. The purpose of this lower-price purchase is to reduce the average cost of the total position in the security. To learn more about "Averaging Down," view this week's segment of "Ask the Institute."