It depends on a lot of things. But since OP was talking about 5 DTE ATM call spreads on individual stocks, I tailored my advice to that. Also, you're talking about statistical risk, and it's 100% correct. But statistical risk matters when you have a large enough sample size (i.e. million dollar market making portfolios). When you're talking about small retail investors, absolute risk is more relevant to position management than statistical risk because crossing the strike is around a 40% event given the credit he took. So to double the spread, you'll take about .06-.08 more in premium to cover the 6-9% event that brings the further OTM strike into play. Makes sense if you have 20+ spreads open at any time--I suspect that's not the case here.I guess I should have qualified the "widen strikes" comment. Everything I've read shows a statistical advantage regarding profitability when earning sufficient premium relative to risk. If the strikes aren't wide enough, you'll never earn enough premium to cover the losses. Obviously you can't go too wide; I've found there's a bit of a sweet spot. Account size matters as you'll be able to go wider and/or trade the SPX vs. the SPY if your large enough to stay within 1-2% account risk. There must be a firm mental stop loss/adjustment point though. You can't simply set it and forget it.
Feel free to challenge my thinking. My feelings won't be hurt.
New options trader- vertical spreads question
- Thread starter arm0211
- Start date
I did not catch that he was ATM (50/50 shot). Wouldn't absolute risk be determined by your margin on a particular spread which should fall between 1-2% of your total portfolio?
Absolute risk is just the spread - premium received.
He never said it was ATM, that was just my inference. And actually, I was being a bit sloppy there, it's slightly OTM. Probably the second and third (or third and fifth if there's .50s) OTM contracts based on premium taken.
Yup. Spread - prem received = my margin cost. 
Selling a dollar wide call spread for 23 cents your pretty much risking 4 to make 1. Your risk on a dollar wide spread is 100. The MOST you can make is 23 dollars per 1 lot obviously. Your risking a hundred dollars to make 23 dollars. The low price of this spread is pretty much directly correlated to the current volatility of that specific underlying or even the overall market. When vol is cheap you may look at buying a put spread instead of selling premium above the market. Also, I like to put on and take off spreads as one position and not break them up. Sell or buy back the vertical and move on to the next trade. These are my opinions and just the way I trade. Not preaching. Thanks