The weighted-average formula
Suppose you buy two identical calls at $3.00 and later one more at $2.10. Total quoted premium units are $8.10. Divide by three contracts: the average premium is $2.70 per share.
| Purchase | Contracts | Price | Quoted cost |
|---|---|---|---|
| First | 2 | $3.00 | $6.00 |
| Second | 1 | $2.10 | $2.10 |
| Total / average | 3 | $2.70 avg. | $8.10 |
Convert the quote into dollars
For standard U.S. equity options, multiply the quoted premium by 100. Three contracts at a $2.70 average represent $810 of premium before fees.
Effect on expiration breakeven
For a long call, expiration breakeven equals strike plus average premium. If the strike is $105, the new breakeven is $107.70. Review the complete long call payoff calculation.
Include fees correctly
Broker platforms may display an average fill price without commissions and regulatory fees. For an economic cost basis, add all opening costs. Closing fees also reduce the final net result.
Do not average different contracts together
A $105 call and a $110 call are separate positions. Different expirations are also separate contracts. A combined portfolio average can obscure the distinct payoff and expiration risk of each contract.
The danger of averaging down
A lower average price does not repair a weak thesis. Adding contracts increases dollars at risk. Reassess the underlying outlook, time remaining and volatility before increasing size.
Frequently asked questions
Is average option price weighted?
Yes. Each fill must be weighted by its number of contracts.
Does averaging down lower maximum loss?
No. It lowers cost per contract but raises total capital at risk when more contracts are purchased.
Continue the series
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Options involve risk. Educational content only; not investment advice.