Cash-Secured Put Strategy
Sell puts while holding cash to buy shares, generating income or acquiring stock at a discount.
Premium received
Strike price × 100 - premium (if stock goes to zero)
Strike price - premium received
bullish
📖 What is the Cash-Secured Put?
A cash-secured put involves selling a put option while holding enough cash to purchase 100 shares at the strike if assigned. You collect premium upfront and either keep it if the put expires worthless or buy shares at an effective discount. This strategy is popular for generating income or accumulating shares of stocks you want to own.
🔧 How to Set Up
SELL PUT @ Below current price (OTM)
Sell to open a put option, hold cash collateral
💡 Example Trade
Underlying: AMD @ $150
Sell 1 AMD $140 put for $4 premium, hold $14,000 cash
$400 (premium × 100)
$13,600 (if AMD goes to zero)
$136 ($140 strike - $4 premium)
📊 Greeks Profile
Positive. Profits as stock stays flat or rises.
Negative. Delta becomes more negative as stock falls.
Positive. Time decay works in your favor.
Negative. Falling IV helps your position.
❓ Frequently Asked Questions
What happens if the put is assigned?
You'll buy 100 shares at the strike price. Your effective cost is strike minus premium collected. Many traders view assignment positively - you wanted to own the stock anyway.
How much cash do I need?
You need strike price × 100 as collateral. For a $100 strike put, that's $10,000. Some brokers offer reduced margin for defined-risk positions.
Pros & Cons
- ✓Generates income immediately
- ✓Buy stock at discount if assigned (strike - premium)
- ✓Profits if stock stays flat or rises
- ✓Foundation of the wheel strategy
- ✗Ties up capital as collateral
- ✗Significant loss potential if stock crashes
- ✗May get assigned at bad time
- ✗Opportunity cost of not owning stock if it rallies
Ideal Conditions
- →Neutral to bullish on the stock
- →Would be happy to own shares at the strike price
- →IV is elevated (more premium to collect)
- →Have cash available to purchase shares if assigned
💡 Pro Tips
- Only sell puts on stocks you want to own
- Choose strikes at your target purchase price
- Use 30-45 DTE for optimal premium decay
- Be prepared to take assignment - it's often a good outcome