Will there be an adjustment in futures contracts if the dividend is less than 5 per cent? If yes, how will this impact my existing position? - Raja Balasubramanian

The threshold of dividends for making adjustments in futures and options (F&O) contracts of a stock is 2 per cent. This was revised from 5 per cent to 2 per cent in June 2022.

But dividends will not have any effect on the profit/loss of your futures position. Because like how the current market price of the underlying and its futures contracts are adjusted against the dividend, the entry price of your trade will also be revised accordingly.

Suppose you are holding a futures contract of stock A bought for ₹120 and is now trading at ₹130. Assume that the dividend is ₹4, which is above the 2 per cent threshold. Here, the current market price and your entry price will be modified to ₹126 and ₹116 respectively.

Could you tell me the correct approach or strategies suitable for small capital for option trading? – Dipak 

There is no one right way or strategy. When it comes to trading, it should be tailored around your characteristics. Because how you can manage your emotions is more important than your analytical skills. There are traders who punch in multiple trades on a single day and be comfortable with it and there are also participants who are very choosy.

That said, there are certain things that you should note. As options trading is short-term, technical analysis can come in handy. Learn the techniques and find a method that suits you, do not trade in stocks with illiquid derivative contracts, have a proper risk management plan, decide your entries and exit points before getting into the trade and stick to it no matter what. Repeatedly altering them is a very common mistake option traders make.

And understand that even the seasoned traders will go wrong sometimes. So, you should have enough capital to sail through the rough patches. Keep the lot size small so that your capital is not wiped out even if you lose three or five trades consecutively.

Send your queries to derivatives@thehindu.co.in

Published on June 21, 2025