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:

1. Fetch the sector for the ticker.
2. Check the current portfolio's allocation to that sector.
3. 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.