OPTIONS STRATEGIES·INCOME·1 LEG

Cash-secured put

Sell a put while holding enough cash to buy the shares at strike if assigned. Generates premium income; great for entering long positions at a discount.

INPUTS

Underlying price

Centers the payoff chart and computes P&L at this price.

LEGS

Short put

Type

Side

Strike

Qty

Premium

RESULT

$60.001 strike$140.00

P&L at current spot (expiry)

+$150

Net credit+$150

Max profit+$150

Max loss−$9,350

Breakeven$93.50

Risk / reward0.02 : 1

Collateral required+$9,500

Return on capital1.58%

RISK PROFILE

Max profit

Premium received × 100 × contracts

Max loss

(Strike × 100 × contracts) − premium received

Breakeven

Strike − premium received

HOW IT WORKS

How a cash-secured put works

A cash-secured put is a short put with the full purchase price set aside in cash. You sell a put at a strike you would be happy to buy the stock at, and you hold enough cash to actually do it. The premium is yours regardless of what happens.

The structure removes the leverage that makes naked puts dangerous. Because the cash is already reserved, there is no margin call and no forced liquidation — the worst case is that you end up owning shares you had decided in advance you wanted, at a price you chose, with the premium reducing your basis.

Traders often use it as a paid limit order. Instead of placing a bid at $95 and waiting, you sell the $95 put and get paid to wait. If the stock never comes to you, you keep the credit and can do it again. If it does, you bought at your price with a discount built in.

WORKED EXAMPLE

A worked example

XYZ trades at $100 and you would be happy to own it at $95. You sell one $95 put expiring in 30 days for $2.00 per share and reserve $9,500 in cash to cover assignment.

Cash reserved

$95 × 100 = $9,500, held aside

Credit received

$2.00 × 100 = $200, kept in all outcomes

At expiry, XYZ ≥ $95

Expires worthless, keep $200 — a 2.1% return on the reserved cash in 30 days

At expiry, XYZ = $90

Assigned 100 shares at $95, effective basis $93.00

At expiry, XYZ = $70

Assigned at $95, now worth $70: −$2,300 unrealised

The last row is the one people skip. Being cash-secured removes the margin risk, not the market risk — you still own a stock that fell 30%, exactly as you would have by buying it outright.

FIT

When a cash-secured put fits — and when it doesn't

Consider it when

You want to own the stock and would rather be paid to wait than place a resting bid.
You have the full cash available and are content for it to sit reserved until expiry.
Implied volatility is elevated, so you are paid more for the same obligation.

Think twice when

You need the reserved cash for something else. It is committed until the position closes.
You are choosing strikes by premium rather than by the price you actually want to pay.
A binary event falls inside the expiry and could gap the stock well below your strike.

FAQ

Common questions

What does "cash-secured" actually mean?

That you are holding strike × 100 in cash per contract, enough to buy the shares if assigned. It is the same option trade as a naked short put but without leverage or margin-call risk.

What return should I expect?

Calculate it against the reserved cash, not the premium alone. A $200 credit against $9,500 reserved for 30 days is roughly 2.1% for the period — and that is the best case, not the expected case.

What if the stock falls well below my strike?

You are assigned at the strike and hold shares worth less than you paid. The premium softens it slightly, but a cash-secured put carries the same downside as buying the stock at your strike.

Is this the same as the wheel strategy?

It is the first half. The wheel sells cash-secured puts until assignment, then sells covered calls against the assigned shares until they are called away, then starts again.

RELATED STRATEGIES

Covered call

Income · Own 100 shares, sell call against them.

Short put (naked)

Bullish · Capped profit, large downside if assigned.

Long call

Bullish · Limited risk, unlimited upside.

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