In order to be successful, you must first know the ground rules of the playing field you're on. With my deep-in-the-money (DITM) calls strategy, you must fully understand how to average down or to properly use the next buy levels.
With my newsletter, readers are given access to data on all my recent plays. I update my "Stat Book Scorecard" every single day. It's listed under the "recent plays" section of "Nails on the Numbers" (https://www.thestreet.com/k/nn/incl/recent-plays.html). In the next buy column of the scorecard, I list the price the stock must fall to before I automatically recommend purchasing 10 more contracts. So, when the stock hits that level, you should buy 10 more options contracts.
I suggest that you do this with a market order, taking the options at the market price. However, you have to be smart and keep the goal of averaging down in mind. The point of averaging down is to put you in a better position than you were before in order to achieve a gain, not to beef up your position unnecessarily. There is no reason to add to a position if it doesn't improve your average price per contract. If you buy more contracts, you have to make sure you buy the options at a lower price. For example, let's say my initial purchase price was $6. That means I would set my good-till-canceled sell order at $7. I am looking to lower both of those numbers with the next buy. If the stock declines and hits my "next buy" level, I then want to place an order to buy 10 more contracts at a price lower than $6. Let's just say I place the order and buy more contracts at a price of $5 per option contract. My new average would be $5.50 (the average of $6 and $5 is $5.50) and I would reset my GTC sell order to $1 above my average. The new sell price would be $6.50. The goal has been achieved: I would have put myself in a better position to achieve a win.
If a pick continues to go down, I will ride it down to the bottom by continuing to average down, and then capture a win when it bounces a bit. Remember, it doesn't have to be a huge bounce because I continued to average down and lowered my average purchase price all along the way. Now, you do need to pay attention when averaging down. You need to make sure that when you purchase more options, the new price you pay actually improves your position. If it does not, do not buy more. The recommendations in my scorecard are automatic recommendations, but it is up to you to pay attention and make sure your order achieves the goal of averaging down. Always remember: Life is a journey, enjoy the ride! Lenny Dykstra runs the newsletter service "Nails on the Numbers." Click here for a free trial. Mr. Dykstra, a former professional baseball player with the New York Mets and Philadelphia Phillies, writes regularly about options trading for TheStreet.com.