Cash-Secured Put: How It Works, Formulas, and Examples
The cash-secured put lets you collect premium by agreeing to buy a stock at a lower price. It is one of the most straightforward income strategies — you sell a put, hold the cash to cover potential assignment, and either keep the premium or buy the stock at a discount.
In this guide
1. What Is a Cash-Secured Put?
A cash-secured put is a single-leg strategy where you sell a put option and simultaneously set aside enough cash to buy 100 shares at the strike price if assigned. The cash is held as collateral — hence “cash-secured.”
When you sell the put, you collect premium immediately. At expiration, one of two things happens: the stock stays above the strike and you keep the premium (the put expires worthless), or the stock falls below the strike and you are assigned — meaning you must buy 100 shares at the strike price.
Traders use this strategy in two ways: as a pure income trade (collecting premium with no desire to own the stock) or as a way to buy a stock they want at a lower effective price (the strike minus the premium).
2. Maximum Profit Formula
Maximum profit occurs when the stock closes above the strike at expiration. The put expires worthless and you keep the full premium collected.
Max Profit = Premium Collected × 100
3. Maximum Loss Formula
Maximum loss occurs if the stock falls to zero. You are assigned and must buy shares at the strike price using your reserved cash, but the shares are now worthless. The premium you collected partially offsets this loss.
Max Loss = (Strike Price − Premium Collected) × 100
In practice this scenario requires the stock to go to zero. The real risk is assignment at a strike price well above the new market price — you own stock at a loss. Only sell puts on stocks you would genuinely want to own.
4. Breakeven Calculation
Breakeven = Strike Price − Premium Collected
If assigned, your effective cost basis on the stock equals the breakeven price. Below this price the position has a net loss; above it, you are profitable even after assignment.
5. Worked Example
NVDA is trading at $900. You want to buy it at $850 or collect premium if it stays above $850.
Trade Setup
- Sell 1 NVDA $850 put expiring in 30 days at $12.00
- Reserve $85,000 in cash (850 × 100)
- Premium collected: $12.00 × 100 = $1,200
Max Profit: $12.00 × 100 = $1,200
Max Loss: ($850 − $12) × 100 = $83,800 (stock to zero)
Breakeven: $850 − $12 = $838
If NVDA stays above $850 at expiration, you pocket $1,200. If it falls to $850 or below, you are assigned 100 shares at an effective cost of $838. You now own NVDA at a $62 discount to where it was trading when you sold the put.
6. When to Use a Cash-Secured Put
- •You want to buy a stock at a discount. Set the strike at the price you are happy paying. If assigned, you get in at a lower cost basis than the current price.
- •You want income on idle cash. Instead of leaving cash in a money market, sell puts to generate yield while waiting for buying opportunities.
- •Implied volatility is elevated. High IV premiums make the income more meaningful relative to the risk taken.
The key rule: only sell puts on stocks you genuinely want to own. If you would not want to hold the stock at the strike price, the strategy carries more risk than it appears.
7. Free Cash-Secured Put Calculator
Model any cash-secured put setup instantly — enter your strike, premium, and stock price to see max profit, max loss, breakeven, and a full P&L chart. No signup required.
Open Cash-Secured Put Calculator