ETMarkets Trade Talk: Chennai software engineer who became a crorepati by selling Bank Nifty options

Please take us through your journey from engineering to trading.

I come from a humble background. My father was a mason and my mother a housewife. I have been working since the age of 13 when my salary was close to Rs 12 per day. Later on, I became a software engineer and my salary was Rs 1 lakh.

But then in 2014, I read the
‘Rich Dad Poor Dad’ book where the author Robert Kiyosaki explained that the salaried class is working for others like a ‘coolie’. If you want to make a fortune, you have to do business. I ended up choosing the stock market. After reading a lot of books and attending workshops, I decided to copy the big boys because Kiyosaki’s book emphasised on imitating the rich. Since big institutions are selling options, I also decided to sell options from my first day in the market.

I get that extra edge of time decay which is in my favour while selling options, whether it is directional or non-directional selling.

I came to the market with Rs 3 lakh and now I am sitting with Rs 4 crore by selling options. I am making a CAGR of 60-70 per cent every year.

Can you share some of the strategies that you use?
There are two popular strategies in option selling. The first one is short strangle, which is selling out of the money options, and the other one is selling at the money option. Selling at the money is a risky proposition while selling out of the money is less risky.

You also use algos for selling options. Can you tell me how you figure out which strategies to adopt and how frequently do you change your algos?

Right now the most common programming language used in algo is Python. Every brokerage is giving a Python API. For example, if you want to long or short at a particular level, you can trigger it using the API. I test the logic using back testing of data of the last 5-10 years. If it gives good results, then I implement it in the algo. Once that is ready, I do not need to sit in front of the system and the algo does its job.

I keep upgrading my strategies every three months. My target is simple. I want to get some extra return but even if I do not get some extra return I want less drawdowns. That’s how I manage my algo. My research is based on controlling my loss rather than looking for a profit.

For example, if the market has been in a narrow range for the last four days, then the chances of a breakout is very high today. You also have to look at volatility by studying ATR (Average True Range) and ADR (Average Day Range) which will tell you how many points Nifty moves in a day on an average

So when it comes to profit, what kind of targets do you have?

When you take a non-directional approach in selling options, you do not have a view. You sell options and adjust your positions. Therein you are trying to get 3% per month. But my algo is for both directional and non-directional. If the market is trending, then you are going to make a huge return. But otherwise, you are going to make a moderate return.

What happens to your algo strategies when an unseen event impacts the market?

My algo has done back testing for five years. RBI or Fed events have happened before as well and so the impact of all such events is factored in. I have a fixed portfolio stop loss and hedging is also in place. For example, if there is a big flash crash in the market, then for every sell option, I give a buy. So my loss is limited at any point of time, whether it is intraday or positional trade.

How did your portfolio react during the Covid lockdowns after the market crash in March 2020 and thereafter?
Since I trade with a large capital, I avoid trading when there is too much volatility and less liquidity in the market. During the Covid period, I was sitting in my hometown for 8 months and did not do any trading at all.