Sizing a vertical by the constraint you can enforce

Maximum loss is the debit already paid

A debit-vertical is a same-expiry long and short option of one type, entered for a net cash outlay that also sets the maximum loss. A credit-vertical is a same-expiry short and long option of one type, entered for a net cash intake whose leftover risk equals strike-width minus that intake.

A debit-vertical's maximum loss equals the debit paid. The material treats a full-debit loss after an adverse gap opening as a condition that must be acceptable before entry.

How the debit-vertical is built

Debit-vertical construction in the material targets at least two units of potential gain per unit of debit, and not less than one-for-one.

On a five-point strike spacing, that construction is described as a debit of 1.65 to 2.50, with a caution against risking more than half the width.

Time-stop before the last 30 days

A time-stop is an exit keyed to remaining days until expiry rather than to a price threshold on the underlying or the spread mark.

A time-based exit in the material leaves the position with at least 30 days remaining. It locates the steepest time-premium decay in the final 30 days before expiry.

Mental-stop, commissions, and prepaid size

The material states that most brokers will not accept stop orders on spreads, so a mental-stop requires continuous watching and can force an early exit. A mental-stop is a discretionary exit level the trader watches because a resting stop often cannot be placed on a multi-leg spread.

On a small number of spreads, commissions are described as able to add as much as 1.00 of cost, which is why a 1.50 debit held without a planned stop is preferred to a 3.00 debit intended to be stopped at 1.50.

Leftover strike-width on the credit book

Strike-width is the distance between the two strikes in a vertical. It caps the spread's value and therefore the residual risk on a credit book.

Credit-vertical residual risk is defined as strike distance minus credit. Collecting 1.00 on a 2.5-point width is presented as tighter leftover risk than the same 1.00 on a five-point width.

One credit-vertical exit in the material is to repurchase the spread when the cost to close equals twice the credit originally collected.

Roll and ratio-backspread after a move against the book

If a credit-vertical moves against the trader, the material describes rolling by buying it back and selling a later-expiry replacement. A roll closes the current spread and opens a similar spread in a later expiry after the first book has moved against the trader.

The other path is adding a same-month same-strike long that converts the book into a ratio-backspread. That conversion turns a credit-vertical into an unbalanced long-volatility book, adds capital, and is flagged as extra risk with fewer than 30 days left.

What is being sized

Editorial reading: the archive is sizing the exit that will still be available after the fill. Prepaid debit, time-stop, and leftover strike-width are the three constraints that do not depend on a resting spread stop the broker may refuse.