A cash-secured put is a short put option backed by enough cash to buy the shares if the put is assigned: strike × 100 for each contract. You collect a premium up front and, in return, commit to buying 100 shares at the strike if the stock finishes below it at expiry.
How it works
Sell one put at strike K and set aside K × 100 in cash. If the stock closes above K at expiry, the put expires worthless and the premium is your profit. If it closes below K, you buy 100 shares at K, and the premium lowers your effective cost. Holding the full cash is what separates this from a short put in a margin account, which ties up less capital but adds leverage.
Per share, with strike K and put premium P (one contract covers 100 shares):
| Measure | Formula |
|---|---|
| Max profit | P |
| Breakeven and effective cost if assigned | K − P |
| Max loss | K − P (if the stock goes to zero) |
| Return on cash at risk | P ÷ (K − P) |
| Annualized return | Return × 365 ÷ days to expiry |
At expiry, the payoff matches a covered call at the same strike. The position gains from time decay (positive theta) and from falling implied volatility (negative vega), and its delta is positive: it gains when the stock rises, but only up to the premium.
How to read it
- Stock first. Only sell puts on a stock you would be glad to own at the strike, through a further decline. A high premium on a stock you would not otherwise buy is compensation for risk.
- Strike as an entry price. Many traders place the strike at or below a level where they would buy anyway, such as a support level or below a large put wall.
- Delta and probability. A put near 30 delta is a common balance between premium and the chance of assignment. A lower delta collects less and is assigned less often.
- Volatility and events. Premiums are larger when implied volatility is high, often because an event such as earnings is close. That same event can leave the stock well below the strike.
- Annualized figures. They assume you could repeat the same trade at the same terms all year, which rarely happens.
Worked example
Illustrative numbers only, not a recommendation. A stock trades at $80. You sell the $75 put expiring in 35 days for $1.50 and reserve $7,500.
- Max profit: $150. Breakeven and effective cost if assigned: 75 − 1.50 = $73.50.
- Return on cash at risk: 150 ÷ 7,350 ≈ 2.0% in 35 days, about 21% annualized before costs.
- Stock at $78 at expiry: the put expires and you keep $150.
- Stock at $85: you keep $150, while buying the shares at $80 would have made $500.
- Stock at $70: you buy 100 shares at $75; at $70 they show a loss of (73.50 − 70) × 100 = $350, compared with $1,000 for shares bought at $80.
- Stock at $60: the loss is (73.50 − 60) × 100 = $1,350.
Compared with a limit order to buy at $75, the put pays $150 to wait, but if the stock dips to $74 and recovers to $90 before expiry, the limit order would have filled, while the put would most likely expire unassigned, leaving you with $150 rather than shares worth $90.
Assignment and early exercise
- Options on US stocks are American-style, so a short put can be assigned before expiry, most often when it is deep in the money with almost no time value left. For a cash-secured put, this only brings forward a purchase you were prepared to make.
- If the stock closes near the strike at expiry, you may not know whether you will be assigned, and after-hours moves can change the outcome. Closing or rolling before expiry avoids this.
- Once assigned, you own the shares with their full downside. Many traders then sell covered calls on them, which is the wheel strategy.
Limitations and common mistakes
- Limited upside, large downside. The most you can make is the premium; below the breakeven, losses grow almost as fast as owning the stock.
- Selling puts into falling markets. Rich premiums often appear after sharp declines, when further declines are also more likely.
- Concentration. Each contract reserves the full purchase amount, so a few positions can absorb most of an account. See stop-loss and position sizing.
- Costs and taxes. Wide bid/ask spreads on thin options reduce the real premium, and tax treatment depends on your country.
In Clear Tape
Pro members can build a cash-secured put on any stock in the Options strategies section of the Options page. It sells the put nearest 30 delta in the expiry closest to 35 days; expiry, strike and delta can be changed. The build shows the leg's quotes, the credit at mid and at natural prices, max profit, max loss, breakeven, chance of profit, capital at risk (strike × 100 less the credit), return and its annualized figure, checks such as earnings before expiry or a strike inside the put wall, a payoff chart and the position's Greeks. Its fit rating is good when options are rich, price is above the put wall and not below the gamma flip, and no earnings fall before expiry. The same put is phase 1 of the wheel. No orders are placed, and data reflects the previous session's close. See pricing.
For educational purposes only. Not investment advice.