Knowing when not to adjust trades: Shubham Agarwal

F&O Cues

Risk management separates survivors from casualties in derivatives trading. Most traders start buying naked calls or puts, chasing trends. Losses pile up. Then someone mentions option writing strategies that profit when markets stay calm.

You switch gears. Premium collection feels safer. Then the market moves against you. Someone mentions adjustments. "Learn to adjust, and you'll reduce losses." It sounds logical.

So you learn adjustment techniques. Then reality hits: If markets always cooperated, nobody would lose money. But markets trend violently, whipsaw unexpectedly, and expire at the worst strikes. Understanding when not to adjust becomes just as critical as knowing how to adjust.

What triggers the urge to adjust? Three factors: Price moving away, time passing, and volatility rising. These create discomfort that screams something must be done immediately. Many traders confuse activity with improvement. They adjust to regain control, not to improve success probability. An adjustment should reduce risk or increase profit potential. If it does neither, it's just a reaction.

Let us list down common situations where adjustments should be avoided.

First, when the market is in a strong trend. In trending markets, neutral strategies stop working. Traders keep rolling strikes, shifting structures, or adding legs, hoping the market will reverse. This rarely works. Adjusting repeatedly only increases costs and emotional pressure. In such situations, the correct decision is to accept a planned loss and exit.

Second, when price has already crossed the breakeven decisively. Once losses reach 35% to 45% of maximum loss, the structure is broken. Adjustments usually turn into damage control, not profit recovery. If the loss is within predefined limits, exiting is the most professional adjustment.

Third, as expiry approaches. During the last two days, option price sensitivity to small underlying changes increases sharply. Small moves cause large losses. Adjustments done close to expiry often backfire because there is no time for recovery through time decay. When time is against you, adjustments lose their edge. Closing the trade is usually the safest choice.

Fourth, during event-driven days. Budget announcements, central bank policy, inflation data, or global events change market behavior. Volatility expands suddenly and unpredictably. Adjustments done before such events are based on assumptions, not probabilities. Staying light or staying out is often the best strategy.

Fifth, when adjustments increase position size. Adding quantity to reduce average loss is not adjustment, it is escalation. Many accounts are damaged not by one bad trade, but by increasing exposure during stress. If an adjustment requires more margin or higher risk, it should be avoided.

Finally, when the trader is emotionally charged. Fear, frustration, or the urge to recover losses quickly leads to poor decisions. Adjustments should be rule-based, not emotion-based. If emotions are high, stepping away is an adjustment in itself.

In conclusion, adjustments are not meant to save every trade. They are meant to improve probability when conditions allow. Knowing when not to adjust keeps losses small, confidence intact, and trading sustainable. In derivatives trading, survival is success, and sometimes the smartest move is doing nothing at all.