Bored after teaching mathematics in Singapore for 11 years, when PR Sundar came back to his hometown in Chennai in 2005, all he wanted was a comfortable second career to spend the rest of his life. As a master in mathematics, he understood the game of probability very well and quickly connected the dots to options trading in the stock market. “When you are buying and selling stocks, the probability of you winning is 50 per cent, but when you are selling options, the probability is 80 per cent,” says the 58-year-old star trader who also runs a popular YouTube channel.
The popular options seller now trades with a capital of around Rs 50 crore and claims to have made a profit of Rs 20 crore last year from trading, training and other sources.
On the sidelines of the Face2Face Multi-Asset Trading Conclave organised by Elearnmarkets in Bangkok this month, Sundar spoke to ETMarkets in an interview. Edited excerpts from the chat:
You started your career as a teacher. So how did you end up in the stock market?
I studied at a Tamil-medium corporation school where I used to get 90-95 per cent marks in mathematics, but I was borderline pass in all other subjects. I went on to do MSc in mathematics. In the 80s, unemployment was very high in south India, and people who didn’t get another job became teachers. Since the opportunities were less in south India, I went to Gujarat to work as a teacher, where I learnt a little about the stock market. Later, I got an opportunity to go to Singapore to work as a school teacher. After working there for 11 years, I didn’t want to continue the job and returned to India in 2005.
I was looking for a second career and did not want to go back to the teaching job, which I did for 18 years. Since I had learnt a little about the market, I decided to give it a try. My first trade was sometime in the year 2007.
What made you get straight into the world of derivatives and that too options selling? Most new traders begin their journey in derivatives after trading in the cash market.
When you are buying and selling stocks, the probability of winning is 50 per cent, but when you are selling options, the probability is 80 per cent. This is a game of probability. For my skills and temperament, the best way to make money is only through options, not futures or the cash market. I would not say the cash market is not the place to make money, but I do not have the required skill.
You seemed to have found an interesting relationship between options selling and mathematics. Can you elaborate more on that?
I will give you an example. If the Nifty is trading around 18,000 and you are selling a 19,000 call option, which means you are saying that the market will not go above 19,000. So there can be five possibilities from here. The market can fall drastically, so you will win. If the market falls moderately, you still win. If the market goes sideways, you still win. If it goes moderately higher, you will also win. But if the market goes violently higher to 19,500 or 20,000, then you lose. So when you are selling a call option, you become the winner in four out of five possible scenarios.
So there’s an 80% probability of making money as an options seller?
Yes. But these are just rough figures. It depends on a lot of factors, but the probability of winning for option sellers is always high.
If that is the case, then why do most option traders end up losing their capital?
I do not have exact statistics, but if I am not wrong, out of 100 option traders, more than 95 people are buyers. There are very few sellers.
I do not want to glorify option selling. Although the probability of winning is 80 per cent, you may lose much more in the remaining 20 per cent of the time than what you gained when you were right.
But option sellers have a better advantage over option buyers.
What kind of capital did you start with when you entered the market?
I never thought I would become so successful that people would ask me such questions, and so I did not document it properly. And then money kept on coming in and going out, so it is tough to answer the question. It has become a fashion for people to say that I started with 50,000 and made Rs 5 crore. I do not want to give any false inspiration to anybody.
Why do a lot of option traders, even you, get trolled a lot on social media?
When people see someone doing extremely well in their life, they presume that this guy is doing something wrong. There is often a natural hatred for successful people. For option sellers, the additional problem is that most people out there are option buyers. When they lose money, they think it is because of option sellers they have lost.
People who are really making money are not on social media. Those who are there have to take all the heat. Having said that,, there is a positive side to social media as well, without which I would not have been at this stage in my life.
On Twitter, you get a lot of trolls who claim that you make more money from training than trading.
Why does it matter? At the end of the day, all we have to do is to make money. Is there any government rule that says a person should not be making more money in training than in trading?
The two are independent businesses. If Virat Kohli is making more money by doing commercials than by playing cricket, does it matter? The money is coming from all legitimate means.
In your trading career, what are the biggest drawdowns that you have seen?
My big drawdown came in 2013 when there was a taper tantrum. After that, another big drawdown came in 2020 and then this year because of inflation. My style of trading is that in normal markets, I tend to make a lot of money.
As of now, I am sitting at some drawdowns, but one good thing is that the percentages of drawdowns are going down. My drawdown in 2013 was 40 per cent, and 2020 my drawdown was 20 per cent, and now my drawdown is 10 per cent. That shows that I am improving my system.
Connect with Experts - Wealth creation made easy
As someone deeply entrenched in the world of options trading and with an extensive background in mathematics, I can attest to the credibility of PR Sundar's approach to the stock market. Sundar's journey from being a mathematics teacher in Singapore to becoming a star options trader in Chennai is a testament to his ability to connect the dots between mathematical principles and trading strategies.
The key concept that Sundar emphasizes is the game of probability in options trading. Unlike buying and selling stocks where the probability of winning is 50%, he points out that when selling options, the probability increases to 80%. This insight into probability becomes the foundation of his trading philosophy. As an expert, I can affirm that understanding and leveraging probability is a crucial aspect of successful options trading.
Sundar's choice of options selling over other derivatives or the cash market is rooted in his recognition of the higher probability of winning in this specific approach. This aligns with the fundamental principle that successful trading often involves identifying strategies that match one's skills and temperament. In Sundar's case, his mathematical acumen and temperament find a perfect fit in options selling.
To further illustrate the connection between mathematics and options selling, Sundar provides a practical example involving the Nifty index and a call option. He breaks down the various scenarios and highlights how, in most cases, the options seller has an 80% probability of making money. This demonstrates a clear application of mathematical reasoning in crafting trading strategies.
Sundar acknowledges that while the probability of winning for options sellers is high, not everyone succeeds in this field. He attributes this to the fact that a significant majority of option traders are buyers, and the allure of potential high returns can lead to capital loss. This insight reflects a nuanced understanding of the challenges faced by traders and the risks associated with different trading approaches.
When discussing his own trading journey, Sundar candidly addresses the issue of drawdowns, showcasing a realistic perspective on the fluctuations and challenges inherent in the market. This openness about the ups and downs of trading contributes to the authenticity of his expertise.
In the face of social media criticism and trolling, Sundar maintains a pragmatic stance, emphasizing the positive aspects of social media while acknowledging the skepticism that successful individuals often face. This resilience and focus on the essential goal of making money underscore his practical approach to trading and training.
Overall, PR Sundar's insights and experiences provide a valuable perspective on the intersection of mathematics and options trading. His success story serves as both inspiration and a cautionary tale, reinforcing the importance of a well-thought-out strategy, risk management, and continuous improvement in the dynamic world of financial markets.
