Cash-Secured Put

Cash-Secured Put Strategy

What Is a Cash-Secured Put?

A cash-secured put is an options strategy where you sell a put option on a stock you want to own, while holding enough cash to buy 100 shares at the strike price. You collect a premium upfront and may be assigned the stock if the price drops.

How to Set It Up

Select a stock you'd be happy to own.
Pick a strike price below the current price.
Sell a put option with an expiration date.
Hold enough cash to buy 100 shares at the strike price.

Why Use This Strategy?

Generate income from premiums.
Buy stock at a discount if assigned.
Suitable for neutral to bullish outlooks.

Benefits

Premium Income: Earn cash upfront.
Discounted Stock Entry: Buy lower than market price.
Defined Risk: Max risk is stock ownership cost.
Flexibility: Profit even if stock stays above strike.

Drawbacks

Limited Upside: You miss out if the stock rallies.
Stock Assignment Risk: You may be forced to buy during a downturn.
Capital Tied Up: Cash must remain available until expiry.

Example

Let’s say you want to sell a cash-secured put on XYZ stock:

Stock: XYZ trading at $55
Strike Price: $50
Premium Received: $2 per share
Cash Reserved: $5,000 (for 100 shares)

Outcome	Result
Stock closes above $50 (e.g., at $53)	Option expires worthless. You keep $200 premium. Return = 4% in 30 days.
Stock closes below $50 (e.g., at $47)	You are assigned 100 shares at $50. Effective cost = $48 per share. Unrealized loss = $1/share.