Cash-Secured Put
Sell put backed by cash
What is Cash-Secured Put?
Cash-Secured Put A cash-secured put (CSP) is a premium-selling strategy where the trader sells a put option while holding enough cash in the account to purchase 100 shares at the strike price if assigned. The strategy collects premium upfront and profits if the stock stays above the short put strike. If assigned, the trader takes delivery of the shares at the strike, with the premium reducing the effective cost basis. Mechanics: - Sell 1 put option (typically OTM, 25-30 delta) - Hold (strike × 100) in cash as collateral - Collect premium upfront - If stock stays above strike: keep premium, cash freed - If stock closes below strike: assigned 100 shares at strike. Effective cost basis = strike − premium received. Worked example: AAPL at $185 - Sell 1 AAPL $180P 30 DTE at $2.50 - Cash required: $18,000 (collateral for assignment) - Premium received: $250 - If AAPL closes above $180: keep $250 premium ($250 / $18,000 = 1.4% return in 30 days, ~17% annualized) - If AAPL closes below $180: assigned 100 shares at $180. Cost basis: $177.50 ($180 strike − $2.50 premium). Stock might be trading at $175 — paper loss of $250 vs market, but you wanted to own AAPL anyway. CSPs are mathematically equivalent to covered calls at the same strike. Both have identical payoff diagrams. The difference is starting position: CSP begins with cash; covered call begins with shares. Strike selection trade-offs: - **25-30 delta** (default): ~30% assignment probability, moderate premium. The standard wheel-strategy default. - **16-20 delta** (further OTM): lower premium, lower assignment risk. Good for capital preservation while still collecting some yield. - **40+ delta** (closer to ATM): higher premium, higher assignment risk. Used when willing or actively trying to acquire shares. Why CSPs are popular: - **Defined-risk premium selling** — max loss is strike × 100 minus premium (large but bounded) - **Discount entry into long positions** — assigned shares are at effective cost basis below the strike - **Compatible with the wheel strategy** — CSP → assignment → covered call rotation - **Foundation of premium-selling income strategies** for many retail traders CSPs are the most common entry point for premium-selling beginners because: - Single-leg simplicity (vs spreads) - Capital-efficient on stocks you'd want to own - Real-money education on assignment mechanics - Smooth pathway into more advanced premium-selling structures CSP best practices: - Only sell on stocks you'd genuinely want to own at the strike - Avoid speculative or low-quality names (assignment risk is real) - Watch ex-dividend dates on dividend-paying stocks - Close at 50% of max profit OR roll defensively before expiration approaches - Size to a maximum 5-10% of account per single position
Complete Definition
A cash-secured put (CSP) is a premium-selling strategy where the trader sells a put option while holding enough cash in the account to purchase 100 shares at the strike price if assigned. The strategy collects premium upfront and profits if the stock stays above the short put strike. If assigned, the trader takes delivery of the shares at the strike, with the premium reducing the effective cost basis. Mechanics: - Sell 1 put option (typically OTM, 25-30 delta) - Hold (strike × 100) in cash as collateral - Collect premium upfront - If stock stays above strike: keep premium, cash freed - If stock closes below strike: assigned 100 shares at strike. Effective cost basis = strike − premium received. Worked example: AAPL at $185 - Sell 1 AAPL $180P 30 DTE at $2.50 - Cash required: $18,000 (collateral for assignment) - Premium received: $250 - If AAPL closes above $180: keep $250 premium ($250 / $18,000 = 1.4% return in 30 days, ~17% annualized) - If AAPL closes below $180: assigned 100 shares at $180. Cost basis: $177.50 ($180 strike − $2.50 premium). Stock might be trading at $175 — paper loss of $250 vs market, but you wanted to own AAPL anyway. CSPs are mathematically equivalent to covered calls at the same strike. Both have identical payoff diagrams. The difference is starting position: CSP begins with cash; covered call begins with shares. Strike selection trade-offs: - **25-30 delta** (default): ~30% assignment probability, moderate premium. The standard wheel-strategy default. - **16-20 delta** (further OTM): lower premium, lower assignment risk. Good for capital preservation while still collecting some yield. - **40+ delta** (closer to ATM): higher premium, higher assignment risk. Used when willing or actively trying to acquire shares. Why CSPs are popular: - **Defined-risk premium selling** — max loss is strike × 100 minus premium (large but bounded) - **Discount entry into long positions** — assigned shares are at effective cost basis below the strike - **Compatible with the wheel strategy** — CSP → assignment → covered call rotation - **Foundation of premium-selling income strategies** for many retail traders CSPs are the most common entry point for premium-selling beginners because: - Single-leg simplicity (vs spreads) - Capital-efficient on stocks you'd want to own - Real-money education on assignment mechanics - Smooth pathway into more advanced premium-selling structures CSP best practices: - Only sell on stocks you'd genuinely want to own at the strike - Avoid speculative or low-quality names (assignment risk is real) - Watch ex-dividend dates on dividend-paying stocks - Close at 50% of max profit OR roll defensively before expiration approaches - Size to a maximum 5-10% of account per single position
Example
MSFT at $415. Sell 1 MSFT $410P 30 DTE for $3.20 credit ($320). Cash collateral: $41,000. MSFT drifts to $418 over 21 days. Close put for $0.60 debit. Net profit: +$260 per contract on $41,000 collateral (0.6% return in 21 days, ~10% annualized).
Related Terms
Frequently Asked Questions
What is a cash-secured put?
A cash-secured put (CSP) is selling a put option while holding enough cash to purchase 100 shares at the strike if assigned. The strategy collects premium and profits if the stock stays above the strike. If assigned, the trader takes delivery of shares at a discount via the premium received.
What's the difference between a cash-secured put and a naked put?
The cash-secured put has cash backing equal to (strike × 100) — sufficient to buy shares if assigned. A naked put doesn't have the cash backing and may use margin or other collateral. CSPs are defined-risk through the cash backing; naked puts can require margin calls if the stock falls sharply.
How much do I need for a cash-secured put?
Cash equal to (strike price × 100 shares) per contract. For an AAPL $180 put, you need $18,000 in cash. The premium received reduces the effective cost basis, but the cash must be available throughout the trade in case of assignment.
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