I am new to the strategy of “buying the dip.” I have never traded like this before. If I felt price would go up I bought Call options. If I thought price would go down I’d buy Puts. Simple. At the suggestion of Gregory Mannarino I decided to try that strategy out on SLV. I know it’s going up in the long term so I bought, then when price dropped some more I bought some more Call options. I kept doing this for a while until I had no more trading capital left. Then SLV’s price kept dropping…..and dropping….and dropping. There is nothing wrong with the price dropping, I just didn’t have any more capital to keep buying as price was falling and I was losing time value.
I was letting the price of SLV drop 0.25 cents and then buy another option. Another drop of 0.25 cents I’d buy another Call option. In retrospect I should have let the price of SLV drop a FULL POINT before buying each option! Then another FULL POINT DROP before buying another option etc. If I would have done that I would have save a LOT of time value and gotten in at a LOT better prices on the Calls I bought. This is what buying the dip every quarter of a dollar move looks like:
Being down is no problem, I’m a swing trader and am used to seeing -85 to -98% losses all the time. The issue here is I would have had a LOT more of those options closer to the bottom of that move if I would have bought the dip at every 1 point loss instead of ever quarter point loss. Lesson learned.
Hopefully this will help out a new trader if they ever decide to try the “buy the dip” strategy.