Strategies
Cash-Secured Put
Also called: CSP, short put
A cash-secured put sells a put while holding enough cash to buy 100 shares at the strike if assigned. It earns premium for the obligation to buy the stock at a lower price and is used to acquire shares at a discount or as an income strategy.
If the stock stays above the strike, the put expires worthless and the seller keeps the premium. If it falls below, the seller buys shares at the strike for an effective cost of strike minus premium. The payoff is identical to a covered call at the same strike, which is why the two alternate in the "wheel" strategy.
Risk is the full decline of the stock below the strike, offset only by the premium. Sellers typically prefer names they want to own, strikes near the expected move, and elevated IV rank so the premium compensates for the downside.
Formula
Effective purchase price if assigned = strike − premium received
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Frequently asked questions
Is a cash-secured put the same as a covered call?
Their payoffs at the same strike and expiration are equivalent by put-call parity. The practical differences are dividends (only shareholders receive them), margin treatment, and which side offers better pricing given skew.