ETMarkets Trade Talk: How IIT, IIM grad from Jaipur made Rs 25 crore from options trading

The son of a road contractor soon realised that his ‘Khatron ke khiladi’ type nature and quantitative aptitude could be a perfect match to the high risk world of options trading. The Nifty Bank options seller now claims to have doubled money every year since 2017, taking his capital above Rs 25 crore.

Hudda’s trading strategy revolves around the fact that approximately 70% of the time the market trades in a range.

“Until a direction is clear on my chart setup, I start with a non-directional strategy in the form of short strangles/straddles. If VIX is very low, I trade in close strikes wrt ATM. If VIX is above 20, I trade in the relatively far OTM since the probability of hitting stop loss is very high in close strikes,” says the trader.

Edited excerpts from a chat:
Armed with degrees at IIT and IIM, you could have had a very comfortable life in the corporate world without the stress and uncertainty of a trading career. What made you quit your job and start trading full-time?

Being introvert and risk-taker by nature and having quantitative aptitude, I was drawn to the dynamic and challenging nature of trading. I enjoyed the idea of being able to make independent decisions and being held accountable for my own success. The corporate world, although stable, lacked the excitement and potential for growth that I found in trading. I took the leap to trade full-time, seeking to constantly learn and improve my skills in the ever-changing financial markets.

In fact, degrees from IIT and IIM gave me confidence to take a break from the corporate world for a limited period and explore my interests.

How comfortable was your family when you decided to quit a well-paying job? Were they supportive initially or thought you had gone mad?
My family was indeed very supportive and encouraging of my decision to pursue a career in trading. In fact, my father, who is a road contractor, always encouraged me to do a business of my own instead of doing a regular job. He always believed in my abilities to succeed. My family’s support was most important to me and helped boost my confidence as I embarked on this new path.

What is the kind of capital that you began trading with and how much returns have you made so far? How much returns did you make last year?
During my MBA in 2013, I embarked on a trading journey in the Futures and Options (F&O) market alongside a group of friends. I borrowed a fund of Rs 3 lakh from my mother from her savings. My initial strategy was option selling. However, my greed to attain quick profits led me to buy naked options without proper risk management, resulting in the loss of all funds.

I started full-time trading in July 2017 with Rs 35 lakh sourced from personal savings, parents’ savings, and trading profits.

Over the past 5.5 years, I have achieved a consistent growth rate of over 100% CAGR, accumulating profit above Rs 25 crore, of which Rs 6.5 crore has been paid in taxes.

In the previous year, I managed to attain profits ranging from 50% to 130% across different risk profiles, totaling Rs 7.8 crore.

As your capital has grown in size, do you find it tougher to manage risk?
As my trading journey progressed and my capital size grew, the intraday risk reduced naturally due to the lowering of leverage from the exchange and SEBI. I only maintained hedged positions overnight to cap overnight risk.

As the capital size grew, entering large orders manually was a challenging task, especially during volatile market conditions, and it led to considerable slippages. However, I learned Python last year and now I have automated my order entries. This has significantly streamlined my trading process and reduced the risk of errors.

Also, I recently launched YAK Trading, a prop trading desk focused on developing future traders through comprehensive training, expert guidance on risk management, and hands-on experience. With this initiative, I aim to efficiently handle larger capital and create a community of successful traders.

On a typical day, what is your strategy as a Nifty Bank seller?
My strategy revolves around the fact that approximately 70% of the time the market trades in a range.

Until a direction is clear on my chart setup, I start with a non-directional strategy in the form of short strangles/straddles. If VIX is very low, I trade in close strikes wrt ATM. If VIX is above 20, I trade in the relatively far OTM since the probability of hitting stop loss is very high in close strikes.

Furthermore, every day before the market opens, I have support and resistance levels marked on 15 minutes and 1 hour charts. If these levels are breached with good volumes, I start changing my strategy to directional in-form of ratio spreads and credit spreads depending upon my level of conviction.

I keep portfolio-level stop-losses ranging from 1 to 2% for the day.

What are the 3-4 key fundamental principles that you follow as a derivative trader?

I follow 4 principles:

1) Risk Management: My topmost priority is to manage risk and make sure to only take trades that are in line with my overall risk tolerance level.

2) Technical Analysis: I follow a simple price action chart having support, resistance levels along with volume. With a top-down approach, I align my trades with the overall trend.

3) Data Analysis: I consider daily FII data of the utmost importance to follow as an intraday trader.

4) Discipline: I follow a strict trading plan and maintain discipline in my decision-making, avoiding impulsive or emotional trades. I also maintain discipline in my overall lifestyle prioritizing mental and physical health.

Looking back, how do you think that your degrees helped you in reaching where you are right now?
My degrees gave me the confidence to take risks and plunge into a highly uncertain field leaving a stable corporate job.

The education I received provided me with a solid foundation in quantitative analysis, critical thinking, and strategic decision-making, which have all been valuable skills in the fast-paced and constantly evolving world of trading.

My experience as a risk manager also deeply ingrained the importance of risk in trading in my mind.

However, I would also credit much of my success to my own hard work, determination, and willingness to continuously learn and adapt to new market conditions.

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