Republic Risk: Position Sizing, Insider Buying, and Big News From Tower Semiconductor

Happy Valentine's Day. Markets are rebounding from their worst day in 11 months. Yet, there's no shortage of liquidity sloshing through the global markets.

Dear  Fellow Expat:

Yesterday, I received a great question from a reader. He asked about position sizing. 

When we outlined the trade for JetBlue (JBLU) yesterday, the put spread covered 100 shares. 

I wanted to wait to answer his question here. 

How much should one put on that trade?

Please remember that the margin is $80 to make $20 over 60 days.

That’s a 25% targeted return. 

There are two ways to answer this question. 

But involves assessing your risk strategy. 

The first is to view it as a trader.

If you are trading this position with a high probability of profit, you need to consider your exit plan BEFORE making the trade.

I would argue that it’s best to set a stop on this trade of roughly 25%.

This means that the value of the spread would increase to $0.40.

You sold it for $0.20. If the trade goes against you, you’d repurchase it for $0.40. 

That would be a 25% loss on your total position (your brokerage may say it’s a 100% loss, but that’s incorrect. Think about the loss in terms of h…