Every options trader faces losing trades. The difference between successful traders and struggling ones often comes down to how they manage those losers. In this guide, we will cover the most effective ways to adjust losing options positions and potentially turn them into winners.
Why Adjust Instead of Just Closing?
When a trade goes against you, your first instinct might be to close it and take the loss. While that is sometimes the right move, adjusting can offer several advantages:
- Reduce your cost basis: Adjustments can lower your breakeven point
- Give the trade more time: Rolling out extends your timeframe for the stock to move in your favor
- Collect additional premium: Some adjustments bring in extra credit
- Turn a loser into a winner: With the right adjustment, a losing trade can become profitable
Important rule: Only adjust if you still believe in the original trade thesis. If the fundamentals have changed, it is better to close the position and move on.
Rolling Your Options
Rolling is the most common adjustment technique. It involves closing your current position and opening a new one at a different strike or expiration date. There are three main types of rolls:
Rolling Out (Same Strike, Later Expiration)
This gives your trade more time to work. You close your current position and open a new one at the same strike but with a later expiration date.
Example: Rolling Out a Credit Spread
You sold a $100/$95 put credit spread expiring in 2 weeks. The stock dropped to $98 and your spread is losing money.
- Close the current spread for a debit of $2.50
- Open a new $100/$95 put spread expiring in 6 weeks for a credit of $3.00
- Net effect: You collected an additional $0.50 credit and have 4 more weeks for the trade to work
Rolling Down (Lower Strike, Same Expiration)
For put spreads or puts, rolling down moves your strikes to a lower level, giving you more room for the stock to fall.
Rolling Out and Down (or Up)
This combines both techniques. You move to a later expiration AND adjust your strikes. This is often the most effective adjustment for losing credit spreads.
Adding a Hedge
Sometimes the best adjustment is to add protection rather than change your original position. Here are common hedging techniques:
Buying Protective Options
If you sold a naked put and the stock is falling, you can buy a put at a lower strike to create a spread and cap your losses.
Example: Converting Naked Put to Spread
You sold a $50 put for $2.00 when the stock was at $55. Now the stock is at $48.
- Your $50 put is now worth $4.00 (you are down $2.00)
- Buy the $45 put for $1.50
- You now have a defined-risk spread with max loss of $3.50 instead of $48.00
Adding Stock or Shares
For some positions, buying or selling shares of the underlying stock can offset your options risk. This is called delta hedging.
Converting to a Different Strategy
Sometimes the best adjustment is to transform your position into a completely different strategy:
- Losing call spread to iron condor: Add a put spread on the other side to collect more premium
- Losing long call to call spread: Sell a higher strike call to reduce cost basis
- Losing straddle to strangle: Roll the losing side further out of the money
When NOT to Adjust
Adjusting is not always the right choice. Avoid adjusting when:
- Your original thesis is no longer valid
- The adjustment would create a position that is too large for your account
- You are adjusting purely out of emotion or hope
- The risk/reward of the adjusted position is worse than just closing
- You would be averaging down into a losing trade without a good reason
The Decision Framework
Before adjusting any losing trade, ask yourself these questions:
- Is my original thesis still valid? If the reason you entered the trade no longer applies, close it.
- What is the risk/reward of the adjustment? Calculate whether the adjusted position has better odds than simply closing and moving on.
- How much more capital am I risking? Some adjustments increase your position size. Make sure you are comfortable with the added risk.
- Am I being rational or emotional? The desire to avoid admitting a loss can lead to bad adjustments. Be honest with yourself.
Track All Your Adjustments
Pro Trader Dashboard tracks your entire trade history, including all adjustments and rolls. See which adjustment strategies work best for your trading style.
Practical Tips for Adjusting
- Have a plan before you enter: Decide how you will adjust if the trade goes against you before you open it
- Set adjustment triggers: Know at what price or loss level you will adjust
- Keep position size manageable: If you plan to adjust, make sure your initial position leaves room to add
- Document everything: Track what adjustments you make and review them later to learn what works
- Practice on paper first: Test adjustment strategies in a paper trading account before using real money
Summary
Adjusting losing options trades is a valuable skill that can significantly improve your trading results. The key techniques include rolling (out, down, or both), adding hedges, and converting to different strategies. Always adjust based on logic, not emotion, and only when your original trade thesis is still valid. With practice, you will develop an instinct for when to adjust, when to hold, and when to simply close and move on.
Want to learn more about options strategies? Check out our guides on credit spreads vs debit spreads and adding legs to trades.