Personal Finance

‘To be successful in stock market you must have edge as well as hedge’

Kumar Shankar Roy |BL Research Bureau | Updated on: Feb 12, 2022

Options trading globally is a high-risk and high-return game that very few have mastered. And, PR (Purisai Rajamani) Sundar is nothing short of a God in this high-octane part of the equity market in India. Naturally, he is one of the most celebrated options traders, and also a renowned trainer for trading strategies, besides being famous on the social media for his witty one-liners. BL Portfolio caught up with this maths teacher-turned-star trader to learn about his investing principles, lessons, money management, and a lot more. Excerpts from the chat:

That 90s TV show that projected the lavish lifestyle of an Australian hedge fund manager and separately, the fall of Barings Bank due to derivative bets gone wrong, have had a big impression on you. What about those two events moved you?

Though I was impressed with the lifestyle of the Australian hedge fund manager, I understood that making money is not that easy. That is what I understood in Nick Leeson (Barings Bank) saga also. Even in India, both Mukesh Ambani and Anil Ambani came from the same family but their fortunes in last 15 years turned out to be opposite — one becoming the richest person of Asia and the other one with companies going for IBC.

So as in any business, stock market investing also has its own risk. In fact, the risk is more visible in stock market.

Somewhat like NRN Murthy who had to borrow money from his wife in early days of Infosys, you too had to convince your wife before investing in stocks. Tell us about it.

Narayana Murthy’s wife was working, so she supported the family while Murthy took the risk in business. In my case, I was the only breadwinner (monetarily) in the family, so it was hard to convince myself, let alone my wife. But then the biggest risk in your life is not taking any risk, so I had to start somewhere. Then came the knowledge from the NCFM book that bank FD can be given as collateral for options (selling) trading. So, I thought the FD interest can take care of my family as long as I am not losing any money in options trading. Though shares as collateral was very popular, not even a dozen people knew that FD could be given as collateral at that point of time.

Why do you feel option selling is better than option buying?

The fact is that most option buyers have the gambling mentality. Remember, options was originally introduced for the purpose of hedging. But what percentage of people use options as a hedging tool? One can deploy hundreds of crores in option selling easily, whereas it is not possible or feasible to deploy such big money in option buying. So, volume matters. You can grow very big only if your business has the potential to take large capital. Do you know the fact that Warren Buffett is one of the biggest, if not the biggest, option sellers in the world? Most option traders are buyers because of capital constraints, and not by choice. 

Talk us through your most profitable trades and how they happened.

In the first part of my market innings, my capital was low and risk capital was even lower. So, I restricted my activity only to IPOs. My first three investments were Aban Lloyd, Camlin, and L&T. All three gave decent returns.

In the second part, I was an option seller, typically taking many trades with small profits. So it’s difficult to come out with data of profitable trades, as every single day I take more than 300-500 trades. There have been some days with MTM profits of over ₹1 crore, but broadly speaking, since I do only positional trades and I trade in huge quantities in several assets. If all of them go well on the same day, that’s a really profitable day.

Tell us about your heaviest loss-making trades that went wrong.

Initially, I was playing in futures and during Lehman Brothers collapse, I lost about ₹50 lakh. That was one of the reasons I switched to option selling. Even in option selling, ‘Black Swan’ event risk is always there. That is why, in order to be successful in stock market you must have edge as well as hedge. I’ve still lost money from time to time, but what matters is the overall returns over a period of time must be positive, and it has always been that way ever since I became an option seller. 

Many say your background as a maths teacher helped you win big at options. Agree?

In any field, you need to have analytical skills. In stock market, that is more important. Naturally, if you have mathematics background, the chances are high that your analytical skill will be good. Other than that, stock market has nothing much to do with mathematics, except being good at +, -, x, and /. There are many non-mathematicians who have done extremely well in both investing and trading. The kind of advanced mathematics that I learnt for half a decade doesn’t play a role. Trust me, I have never applied the theorems I learned in any strategy.

What kind of asset allocation do you follow?

I am not a big fan of real estate investments. I do buy only for personal consumption. I strongly believe that no asset class will give significantly higher return than bank FD returns over a long period of time. In fact, I learned that Nifty has given more or less the same returns as PPF over a period of 25 years. So, I tend to keep most of my money in fixed instruments. I do invest a small portion of my wealth into stocks also, but that will be less than 5 per cent. Since I am already taking risk in the options market, I do not want any other risk for my capital.

 What are your future goals?

I have two visions right now: one is professional and the other is personal. The professional vision is to be a role model for people who want to take trading as their profession. I already conduct workshops and teach people how to trade. I’m planning a mentorship programme soon in which traders get to join me every day in my own office. Needless to mention, I will be continuing to educate people and creating awareness through my YouTube channel.

My personal vision is to help the people in need. Some people passed on their kindness to me which is definitely the reason I survived poverty and did well in life. I want to pass it on to as many people as possible. We’ve been taking care of many children’s education for the past several years. We’re looking to ramp up further. We successfully started a Trust and my dream is to build a school and a hospital that offer education and medical help, respectively, at a very low cost (free or non-profit).

Published on February 12, 2022
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