basicLow RiskNeutral / Bullish

Cash Secured Put

Sell a put backed by cash and get paid to wait to buy a stock at a lower price.

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What is a Cash Secured Put?

A cash-secured put involves selling a put option on a stock while holding enough cash in your account to buy 100 shares at the strike price if assigned. The put buyer pays you a premium, which you collect immediately. If the stock stays above the strike price at expiration, the put expires worthless, you keep the premium, and your cash is freed up to run the trade again next month. If the stock falls below the strike, you are assigned and must buy 100 shares at the strike — but your effective cost is the strike price minus the premium collected, which is lower than the strike itself. This is Warren Buffett's preferred options strategy: you get paid to wait to buy a quality stock at your desired price, and if it never reaches that price, you keep the income. The cash-secured put is the first leg of the Wheel strategy.

When to use it

Use a cash-secured put when you want to own a specific stock but at a lower price than where it currently trades, or when you are simply willing to collect premium on a stock you are comfortable owning. The strategy works best in neutral-to-bullish markets on high-quality stocks with solid fundamentals — you are, in effect, insuring the stock against a decline and getting paid for it. Avoid selling puts on speculative stocks or companies facing existential risk, because assignment would leave you owning shares in a deteriorating business. The ideal scenario is a stock you have done your homework on, at a strike price that represents genuine value — so assignment would feel like a good outcome, not a punishment.

Structure

Sell 1 put option at your target buy price (the strike) and hold cash equal to (strike × 100) in your account to cover potential assignment. Most traders sell puts 30–45 DTE at a strike 5–10% below the current stock price. The reserved cash earns little return, so the put premium is the primary income source during the holding period.

Key Metrics

Max Profit
The premium received, collected immediately and kept in full if the stock closes above the strike at expiration. This is the maximum gain — you cannot earn more than the premium. The return on capital is calculated as (premium received) ÷ (cash reserved). For example, selling a $90 put for $1.50 with $9,000 reserved yields a 1.67% return for the cycle.
Max Loss
Stock falls to zero: you are forced to buy shares at the strike price, and they are now worth nothing. Maximum loss = (strike × 100) − premium received. In practice, the risk is the stock declining significantly — for example, selling a $90 put and the stock falls to $60 means you own shares at $90 effective cost ($90 − premium) worth only $60. Always sell puts only on stocks you genuinely want to own at the strike price.
Breakeven
Strike price minus the premium received per share. For example, selling a $90 put for $2.00 gives a breakeven of $88.00. If the stock falls to $88.00 at expiration, your total position (assigned shares at $90 minus $2 premium) is at cost. Any stock price above $88.00 at expiration results in a profit — either from premium alone (if no assignment) or from the lower effective cost basis (if assigned).
Greeks Profile
Delta is positive — the short put behaves like a partial long stock position. If the stock rises, the put loses value and you profit; if it falls, the put gains value and your position shows a loss. The delta of an OTM short put is typically 0.20–0.35 for a standard setup, giving partial stock-like exposure. Theta is positive — time decay works in your favor as the put seller. Every day that passes without the stock falling to the strike adds to your effective profit. Vega is negative — a decline in implied volatility benefits you, as the put you sold becomes cheaper to buy back.

Tips & Best Practices

  • 1Only sell puts on stocks you genuinely want to own at the strike price — assignment is a real possibility, not just a theoretical one.
  • 2Sell at strikes that represent technical support levels — this increases the probability that support holds and the put expires worthless.
  • 3The covered call is the natural follow-up strategy if you get assigned — sell a call on your new shares to continue generating income (this is the Wheel).
  • 4Use implied volatility rank to time entries — selling puts when IVR is above 30–40 means you collect more premium for the same strike.
  • 5Do not sell puts on earnings day — IV crush is unpredictable and the stock can gap far below your strike overnight.
  • 6Consider the effective annual yield: a 1.5% monthly return compounded is approximately 18% annually — track this as your performance metric.
  • 7If the put is tested (stock approaches the strike), you can roll down and out — buy to close and sell a further OTM put in the next expiration — to collect more credit and avoid assignment.
  • 8Size each position so that assignment (buying 100 shares) would not overconcentrate your account in a single name.

See it in action

Model a Cash Secured Put with a real ticker. See the P&L chart, heatmap, and exact breakevens.

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