Knowledge Base

In equity trading, buy average is straightforward it is the average price at which you bought a stock across multiple purchases. In F&O, it works similarly but there are a few things specific to derivatives that are worth understanding.

What is the buy average in F&O?

Buy average in F&O is the average price at which you have entered a position across multiple trades in the same contract. It is calculated the same way as in equity:

Buy average = Total amount spent ÷ Total quantity bought

For example, if you buy 50 lots of Nifty futures at 22,000 and then buy another 50 lots at 22,200, your buy average is:

• Total amount = (50 × 22,000) + (50 × 22,200) = 11,00,000 + 11,10,000 = 22,10,000
• Total quantity = 100 lots
• Buy average = 22,10,000 ÷ 100 = 22,100

How is it different in F&O?

In equity, you can hold a stock indefinitely and keep averaging your buy price over time. In F&O, every contract has an expiry date. Once the contract expires, your position is settled and the buy average resets for the next contract.

Also, in F&O your buy average only reflects the entry price of the contract, it does not include the margin blocked or the brokerage and charges paid.

What about options?

For options, the buy average works the same way it is the average premium you paid across multiple buy trades in the same option contract.

For example, if you buy 1 lot of Nifty 22,200 CE at a premium of ₹100 and then buy another lot at ₹150, your buy average premium is ₹125.

Your profit or loss on the position is then calculated based on the difference between this average premium and the current premium of the option.