Nvidia (NVDA) – Purchased Shares
This was a Tier 1 trade but was a small position given the large ATR.
Air Lease Corp (AL) – Shares Purchased
Risk-Based Position Sizing
I have been asked to demonstrate how I determine the number of shares to purchase so I will provide the details below based on a portfolio size of $250,000.
The first step in my calculation is determining the percentage of my portfolio to allocate to US equities. I use a number of momentum strategies (aka tactical asset allocation) to arrive at allocations for each asset class. Currently, my allocation to US equities is 38%, and thus for my example $95,000 is allocated to US stocks.
The next step is a calculation of the risk value for my US equity holdings which is a personal choice and I am going to use a risk allocation of 5% in my example. I will assume that I will hold stocks in a maximum of six companies. $95,000 x 5% = $4,750. The dollar value of risk per stock position is $4,750 / 6 = $792. I divide $792 by 2 x ATR(14) to calculate the number of shares to purchase. ATR(14) is the average true range of the stock price over the past 14 days. 2xATR(14) is a common value to use when setting a stop loss. The stop loss is generally Purchase Price – 2xATR(14) which in my example is $43.65 – $3.45 = $40.20.
After the purchase is complete, I could set a hard stop loss of $40.20 or a trailing stop loss of 8%. My choice is to select the latter.
If the concept of ATR is new to you, here is a helpful article on the StockCharts site.
Covered Calls Update
The table below provides trade details for my recently closed covered calls as well as a summary of covered call trades that I completed in 2021.
Asset Class Allocations
My tactical asset allocation model currently has allocations as provided in the table below.
My open trades can always be viewed here.