The distance between the strikes in a vertical spread; it sets the maximum value of the spread and therefore the risk.
Width times the options-multiplier is the most a vertical-spread can ever be worth. From that one number, max-profit and max-loss follow directly: a credit spread risks width minus credit, a debit spread can make width minus debit.
Choosing width is choosing position size. Traders who cannot reduce contract count below one use width instead, which is why narrow spreads exist at all.
Example: the XYZ $45/$50 put spread is $5 wide, worth at most $500. Sold for $1.60, maximum loss is $340. The $47.50/$50 spread is $2.50 wide, worth at most $250. Sold for $0.90, maximum loss is $160 — roughly half the risk, in the same direction.
Original diagrams for the ideas on this page. Illustrative, not real market data.
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.Working out a position size. Three numbers decide how big a trade is: the account, the share of it put at risk, and the distance from entry to stop. One percent of $25,000 is a $250 budget, and a $0.50 stop divides into that 500 times.
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