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Bought a stock at the top? Here's what to do now

You can hold, sell or sell covered calls against it. Pick by asking if you'd buy it today, not by what you paid. Buying more to lower your average grows the risk fast.

Beginner guide · 9-minute read · Updated 2026-10-28

First: everyone buys a top sometimes

You bought. It went down. Maybe right away. It feels like the market waited for you. It didn't. Nobody rings a bell at the top, and nobody picks it every time. People who've invested for decades have bought plenty of tops.

So drop the shame. It won't help you choose. What helps is seeing your choices clearly, with numbers. If the loss is fresh and big, start with what to do after losing money in stocks, then come back here.

Your buy price isn't a magic number

Here's the trap almost everyone falls into. You bought at $60. Now every choice gets measured against $60. "I'll sell when it gets back to $60." "It's cheap now, compared to $60."

Getting stuck on one number like that is called Anchoring bias. Your buy price feels like the stock's "real" price. But the market has never heard of it. The stock doesn't know what you paid. It won't try to get back there for you.

There's a second trap right next to it. The money you lost feels like it has to be "won back" from this stock. Holding on because you've already lost so much is the Sunk cost fallacy. The loss already happened. It shouldn't vote on what you do next.

Your three real choices

Once your buy price is out of the way, you have three honest options:

1. Hold. Fair if you'd buy it today, the reason you bought still holds, and it's a size you can sleep with.
2. Sell, or sell some. Fair if you wouldn't buy it today, or it's too big a share of your money. Selling locks in the loss, but it stops it growing. Stock down 50 percent, sell or hold has a full decision table.
3. Hold and sell covered calls against it. You collect a premium while you wait. More on that below.

There's a fourth choice people reach for first: buy more to lower the average. It deserves its own section, because the math is not what it seems.

Averaging down: the real numbers (hypothetical)

Averaging down means buying more as the price falls, so your average price per share drops. It's true that the average drops. What people miss is that your risk grows at the same time.

Riley buys 100 shares of a made-up stock, XYZ, at $60. That's $6,000. XYZ falls to $40. Riley buys 100 more at $40 to "bring the average down". That's another $4,000. Riley now owns 200 shares at an average of $50, with $10,000 in.

Then XYZ keeps falling to $30.

Read the $30 row. Averaging down turned a $3,000 loss into a −$4,000 loss. At $20 it's $6,000 instead of $4,000. Riley also has $10,000 tied up instead of $6,000, in the one stock that just proved it can fall.

Now read the $50 row. Here's why averaging down feels so good when it works: Riley is back to even at $50, not $60. That's real. But it only pays if the stock turns. If it keeps falling, you lose more, faster. Check your own numbers in the average cost calculator.

The test before you add a single share: would you buy this many shares today if you owned none? And would the bigger total still be a size you can sleep with? If either answer is no, don't add.

Selling covered calls on a stock that's down

If you own 100 shares or more, you can sell a Covered call. You agree to sell your shares at a set price, the Strike price, by a set date. Someone pays you a premium now for that promise. It's one half of the wheel strategy.

Here's the catch on a stock that's down. To collect a decent premium, the strike often has to sit below what you paid. If the stock rises past it, your shares get sold there, and the loss is locked in.

A worked example (an illustration, not a trade idea). Riley owns 100 XYZ bought at $60. XYZ is now $40. Riley sells a call with a $45 strike and collects $100 today.

The $100 helps a little. But in the bottom row, Riley sold the shares for $45 that cost $60. The stock rose, and Riley missed the climb above $45. Before you do this, read covered call when the stock goes down and I sold a call below my cost basis.

How to not buy the next top

You can't pick the top. But you can stop one buy from hurting this much:

• Buy in pieces. Split what you want to put in into three or four buys over a few weeks or months. You'll never get the very bottom, and you'll never put it all in at the very top.
• Cap the size. Pick the most of your money any one stock can be. Write it down before you buy.
• Write one line on why. "I'm buying because…" If it's "it's going up and everyone's talking about it", wait a week.
• Write your drop plan. What you'll do if it falls 20%. See how to stop panic selling.

And if you already sold this one at the low, read panic sold at the bottom.

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