position-sizing

name	position-sizing
description	Hard sizing rules (R1-R7) for every proposed paper order. The order tools re-validate these numerically inside the moomoo MCP server — if you skip them, the order is blocked.

Position sizing

Every order proposal MUST pass these rules (R1-R7). The shared order guard re-checks them against live equity + open positions at order-time — once client-side in the pretool_order_guard hook, and again inside place_paper_order / place_paper_option_order themselves (the authoritative check; the autonomous graph, scripts, and direct MCP calls cannot route around it). Slop here means a blocked order, not a soft warning.

Canonical code: src/trading_agent/sizing.py (pure rules, no I/O) + src/trading_agent/order_guard.py (shared gate: thesis freshness, open/close intent, SELL-to-open block, audit). Hook: src/trading_agent/hooks/pretool_order_guard.py. Every evaluation is recorded in the hook_audit_log table; jobs/reconcile_order_guard.py alerts nightly on any fill with no evaluation row.

The numbers in sizing.py are canonical — this doc mirrors MAX_SINGLE_RISK_PCT, MAX_CONCURRENT_OPENS, MAX_TICKER_EXPOSURE_PCT, MAX_OPTION_NOTIONAL_PCT, OPTION_DELTA_MIN/MAX, OPTION_DTE_MIN/MAX, MIN_RISK_REWARD. If this doc and the constants ever disagree, the constants win; when thresholds change again, update the constants and just sync the numbers here. Current values include the 2026-05-22 threshold raises (see the comment block above the constants).

Closing orders (selling a long, buying back a short — intent="close") reduce risk and bypass the opening-only rules (R1, R2, R4–R7); R3 stops counting the new order's notional on closes.

The rules

R1 — single-trade risk ≤ 2.5% equity (MAX_SINGLE_RISK_PCT)

• Stock: risk = |entry - stop| × qty. Pass stop into place_paper_order — without it the hook falls back to an implicit 5% stop and emits R1_stop_missing warn.
• Long option: risk = debit_per_share × contracts × 100. Max loss is the debit paid.
• Short put (CSP): risk = strike × 100 × qty − premium collected (worst case = full assignment).
• Naked short call: risk = 1.5 × |stop − entry| × qty × 100 (stress-buffered stop distance, NAKED_CALL_STRESS_MULT). No stop → max loss is infinite → blocked (R5c also blocks separately).
• No averaging into losers unless a new thesis is filed.

R2 — concurrent open positions ≤ 6 (MAX_CONCURRENT_OPENS)

• Opening orders blocked when already at 6 opens. Closing orders bypass (they free a slot).
• If you need a 7th, close one first.

R3 — per-ticker exposure ≤ 12% equity (MAX_TICKER_EXPOSURE_PCT)

• Stock + options for the same ticker combined. Notional = qty × entry (stock) or contracts × 100 × entry (options).
• Prevents "all-in on NVDA" when the thesis is hot.

R4 — sector concentration: max 2 opens per GICS sector

• Lookup table: data/sectors.csv (~90 US large-caps + common ETFs).
• If the proposed ticker isn't in the table, the hook emits R4_sector_unknown warn and does NOT block. Add missing tickers manually if you trade them often.

R5 — options policy

• Side = BUY only to open, for now. SELL-to-open is hard-blocked at the order layer (R_short_option_open_blocked) — including the short leg of a would-be spread — until multi-leg combos get atomic sizing. SELL-to-close an existing long is exempt. When the block lifts, R5b/R5c below govern short legs (they already apply in hypothetical sizing and replay).
• DTE ∈ [14, 60]. Parsed from the OCC expiry in the option code; caller can also pass dte explicitly.
• |delta| ∈ [0.25, 0.65] when delta is passed.
• Notional ≤ 1.5% equity (= contracts × 100 × entry for the single trade).
• Single-leg only. Do NOT leg into spreads with two orders — the SELL leg will be refused.

R5b — cash-secured put collateral

• An opening short put must be fully cash-collateralized: cash ≥ strike × 100 × qty − premium collected.
• Missing/invalid strike → block (collateral can't be verified).

R5c — naked short call requires an explicit stop

• Opening a short call needs stop > entry, otherwise blocked outright — the stop (plus the 1.5× stress buffer in R1) is the only thing bounding the theoretically unbounded risk.

R6 — earnings lock

• Within 2 trading days of next earnings (earnings_dte ∈ [0, 2]), only strategy labels starting with earnings_ are allowed.
• Rationale: IV crush eats directional single-leg long premium; use debit spreads (label earnings_debit_spread) or skip the print.
• earnings_dte must be passed by the caller — the hook cannot look it up itself.

R7 — risk:reward ≥ 1.3 for opening LONG trades (MIN_RISK_REWARD)

• R:R = |target − entry| / |entry − stop| must be ≥ 1.3. Fails → block; fix by tightening the stop OR widening the target.
• No target passed → R7_target_missing warn only (floor not enforced). Pass a target so it is.
• Stop or target within a penny of entry → block (degenerate geometry).
• SHORT premium opens are exempt — R:R is structurally capped when selling premium.
• The floor is mirrored in llm.schemas.MIN_RISK_REWARD; both must move together.

Sizing recipe

Given equity, entry, stop, and target exposure:

# Stock, risk-first
risk_budget   = 0.025 × equity                # R1
per_share_risk = |entry - stop|
max_qty_R1    = floor(risk_budget / per_share_risk)

max_qty_R3    = floor(0.12 × equity / entry)  # R3
max_qty_R2    = 0 if opens ≥ 6 else max_qty_R1
qty           = min(max_qty_R1, max_qty_R3, max_qty_R2)

# R7 gate before submitting:
#   (target - entry) / (entry - stop) ≥ 1.3   (long trades)

# Long option, notional-first
cap_notional  = min(0.015 × equity,           # R5
                    0.025 × equity)           # R1 (==max loss for long premium)
max_contracts = floor(cap_notional / (debit × 100))

When the guard blocks

The hook stderr message (or the order tool's {"order_blocked": true, "violations": [...]} response) names the rule + shows the numbers. Read it. Don't retry the same order — fix the inputs (smaller qty, wider stop, or different ticker). If you genuinely believe the rule is wrong for your strategy, that's a Phase-2 policy discussion — don't edit the guard.

What the guard DOES NOT check

• Liquidity (bid/ask spread, volume, open interest). That's your job.
• Correlation beyond sector bucket. Two tech stocks = blocked by R4 once you have two opens; two banks with different exposure profiles might both be "Financials" — treat the rule as a floor, not a ceiling.
• Earnings dates. Caller must pass earnings_dte for R6 to engage.