Position Sizing Calculator
Overview
This skill calculates the optimal position size for a long stock trade based on a defined risk management framework. It ensures that no single trade can disproportionately impact the portfolio.
Core Features:
- Risk-Based Sizing: Position size is determined by risk per trade, not a fixed dollar amount.
- Multiple Sizing Models: Supports Percent Risk, ATR (Average True Range) Volatility, and Kelly Criterion models.
- Stop-Loss Integration: Calculates the number of shares to buy based on the distance to the stop-loss.
- Portfolio Context: Checks for sector concentration and total portfolio risk.
When to Use This Skill
Explicit Triggers:
- "How many shares of AAPL should I buy?"
- "Calculate the position size for a trade in TSLA."
- "My stop-loss for GOOG is at $170, how much should I buy?"
- User asks about "position sizing," "risk per trade," "Kelly criterion," or "ATR sizing."
Implicit Triggers:
- User is planning a new stock purchase and mentions an entry and stop-loss price.
- User is asking about how to manage risk on a new trade.
Workflow
Step 1: Gather Inputs
The user must provide the following information:
position-sizer calculate \
--portfolio-value 100000 \
--risk-per-trade-pct 1 \
--entry-price 175.00 \
--stop-loss-price 170.00 \
--ticker AAPL \
# Optional sizing model:
--model percent-risk # (default) or 'atr' or 'kelly'
# Required for ATR model:
--atr 2.5
# Required for Kelly model:
--win-probability 0.60 \
--win-loss-ratio 2.0
Required Parameters:
--portfolio-value: Total value of the trading portfolio.--risk-per-trade-pct: The maximum percentage of the portfolio to risk on this single trade (e.g., 1 for 1%).--entry-price: The intended purchase price of the stock.--stop-loss-price: The price at which the position will be sold for a loss.
Optional Parameters:
--ticker: The stock ticker (used for sector concentration checks).--model: The sizing model to use. Defaults to percent-risk.--atr: The Average True Range of the stock (required for atr model).--win-probability and --win-loss-ratio: Required for kelly model.
Step 2: Execute Calculation Script
Run the position sizing script with the provided inputs:
python3 skills/position-sizer/scripts/position_sizer.py --portfolio-value 100000 ...
The script performs the calculations based on the selected model.
Calculation Models
1. Percent Risk (Default)
- Risk per Trade ($) = Portfolio Value * (Risk per Trade % / 100)
- Risk per Share ($) = Entry Price - Stop-Loss Price
- Number of Shares = Risk per Trade ($) / Risk per Share ($)
2. ATR Volatility Sizing
- Risk per Share ($) = ATR * Multiplier (default 2x)
- Stop-Loss Price = Entry Price - Risk per Share ($)
- Number of Shares = Risk per Trade ($) / Risk per Share ($)
- This model is useful when a stop-loss price is not predetermined.
3. Kelly Criterion (Advanced)
- Kelly % = Win Probability - [(1 - Win Probability) / Win-Loss Ratio]
- Position Size ($) = Portfolio Value * Kelly %
- Number of Shares = Position Size ($) / Entry Price
- This model optimizes for long-term geometric growth but can be aggressive. Often used at half-Kelly.
Step 3: Sector Concentration Check
If a --ticker is provided, the script will:
- Fetch the sector for the ticker.
- Check the current portfolio's allocation to that sector.
- Issue a warning if the new position would push the sector's weight above a defined threshold (e.g., 25%).
Step 4: Present the Results
The script outputs a JSON object and a human-readable summary.
JSON Output:
{
"model": "Percent Risk",
"inputs": { ... },
"results": {
"risk_per_trade_usd": 1000,
"risk_per_share_usd": 5,
"num_shares_to_buy": 200,
"position_size_usd": 35000,
"position_size_pct_of_portfolio": 35.0
},
"warnings": [
"This position will represent 35.0% of your portfolio. This is a highly concentrated position."
]
}
Human-Readable Summary:
- Model Used: Percent Risk
- Max Risk on this Trade: $1,000.00 (1.0% of $100,000 portfolio)
- Entry / Stop: $175.00 / $170.00 (Risk per share: $5.00)
- Calculated Position Size:
- Shares to Buy: 200
- Total Position Value: $35,000.00
- Portfolio Impact: This position will be 35.0% of your total portfolio.
- Warnings:
- ⚠️ This is a highly concentrated position.
Important Considerations
- Integer Shares: Remind the user that they can only buy whole shares, so rounding down is the safest approach.
- Liquidity: For large position sizes, warn about potential slippage on entry.
- Not Financial Advice: Include a disclaimer that this is a risk management tool, not a recommendation to buy or sell.
