Does size matter?

Position sizing is meant to prevent a massive blow up in your portfolio by limiting how much you put in any one position or with any one strategy.

Some parts of position sizing- the parts that relate to buying and selling- are one size fits all.

But guidance for other areas- short term options, LEAPS or put sells – will vary from person to person. You will get the general idea.

For large cap stocks you should invest no more than 4% of your investable portfolio in any one position. You should set a 25% stop loss on large cap positions. This means the MOST you can lose if the stop loss is hit, theoretically, is 1% of your portfolio. If the company pays an increasing dividend there is no stop loss.

On small and mid cap stocks you should invest no more than 2% of your investable portfolio in any one position and set a 25% to 35% stop loss (to account for smaller stocks greater volatility). This will ensure you lose no more than 0.05% to 0.66% of your portfolio if the stop loss is hit.

On long term equity anticipation securities (LEAPS) you should invest more than 10% to 15% of the underlying share price on a one year LEAP option. And no more than 20% to 25% of the underlying share price on a two year LEAP option.

The actual dollar amount should be less than 1% of your investable portfolio, and you should set a wide stop loss, such as 50%, or NO stop loss at all. This means you are limited to losing 0.05% to 1% of your investable portfolio.

You can adjust this based on your portfolio size, risk tolerance and investing experience. The objective of position sizing is not to let one or two- or ten- bad trades that blow up your entire portfolio so you can survive in a bear market.