P. R. Sundar suffered a loss of Rs. 1.3 Crore in HDFC Options trade. He has explained his learnings

Discussion in 'Traders Corner' started by Michael Gonsalves, Jun 12, 2022.

  1. Michael Gonsalves

    Michael Gonsalves Member Staff Member

    Jun 26, 2016
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    HDFC Limited, the blue-chip financial services behemoth, is normally a sedate stock which moves in a range and does not exhibit aggressive moves. This is why the stock is a favourite amongst traders who prefer to sell Call and Put options and earn from the premium.

    Top Options trader P. R. Sundar had sold large quantities of the 2400CE strike price, which was Out of the Money (OTM) at that stage, in the expectation that the stock would close below that price and he could keep the premium.

    However, when the news was announced that HDFC Bank would merge into HDFC Ltd, the stock price of both stocks shot up, trapping the Call sellers.

    Normally, the easiest way to minimize damage is to sell Put Options, which is what P. R. Sundar did. He aggressively sold large quantities of Put Options of HDFC.

    However, to his bad luck, the stock reversed, trapping him badly. Now, the Puts were bleeding profusely.

    "I just could not manage though I was firefighting. Sometimes, in firefighting, instead of reducing the loss, we increase it," he said.

    "I lost Rs. 1.30 Crore from one single stock," he added.

    "Just imagine how can HDFC move from 2000 to 3000 and come back to 2000. We are bound to make losses no matter how much we do the firefighting," he remarked.

    "This kind of disaster is a part and parcel of a traders' life," he observed in a philosophical manner and cited the example of Jesse Livermore who, despite his enormous skills in trading, lost his entire fortune.


    Position sizing is very, very important:

    He also explained the key mistake he made was with regard to position-sizing. Though he normally takes small positions in stocks, this time he got carried away and dabbled with huge quantities.

    "Position sizing is very, very important. Market will show its colour only when we are least prepared," he emphasized.

    Thankfully, despite the carnage, P. R. Sundar managed to make a profit from the other trades amounting to Rs. 90 Lakh. His stated that his target is to make a gain of Rs 2 Crore per month.

    It may be recalled that P. R. Sundar has also explained how he lost Rs 1 crore because of following technical analysis.

    Lessons from the loss

    Experts say that one should completely avoid trading stock options because of their tendency to react to news and events such as earnings. It is advisable to stick to the Indices and that too only the Nifty. Even the Bank Nifty should be avoided as it is a sectoral Index and not broad-based with multiple sectors.

    One should dabble with stock options only if one is able to give or take physical delivery.

    In the case of HDFC Ltd, I was also trapped by the plunge in the stock price. However, because I had limited exposure, I took delivery of the stock. Later, when the stock surged again, I sold it and made a gain.

    One can also sell Put Options in stocks to be able to buy the stock at lower levels. In the case of DIVISLAB, I did an options trade which enables me to buy the stock at Rs. 3344 even though the price was then Rs. 3660. Likewise, I did a trade in GRASIM which enables me to buy the stock at Rs. 1262. I also did a trade in BALRAMCHIN because experts had advised that the stock is oversold due to baseless reasons. In all trades, I ensured that I have enough funds to take physical delivery of the stocks if required.