Cash-secured puts explained
A cash-secured put means you sell a put option and keep enough cash in your account to buy the shares if you are assigned. You are paid a premium now for agreeing to buy 100 shares at the strike price.
How it works
- You sell to open one put at a strike you choose. The buyer pays you the premium.
- You set aside strike × 100 in cash for each contract. That is the "cash-secured" part.
- If the stock is above the strike at expiration, the put usually expires worthless. You keep the premium and the cash is freed up.
- If the stock is below the strike, you will likely be assigned: you buy 100 shares per contract at the strike, using the cash you set aside.
The put buyer has the right to sell you the shares. You have the obligation to buy them. That obligation is what you are being paid for.
The formulas
All per contract and before fees.
Worked example
Example numbers
A stock trades at $32. You sell 1 put at the $30 strike for $0.90, and keep $3,000 in cash for it.
Outcomes at expiration
| Stock at expiration | What happens | P/L |
|---|---|---|
| $32 | Put expires worthless. Keep the premium. | +$90 |
| $30.50 | Put expires worthless. Keep the premium. | +$90 |
| $29.10 | Assigned at $30. Shares worth $2,910. | $0 |
| $28 | Assigned at $30. Shares worth $2,800. | −$110 |
| $20 | Assigned at $30. Shares worth $2,000. | −$910 |
Check the $28 row: you pay $3,000 for shares worth $2,800, which is −$200, and you keep the $90 premium, so −$110. Same answer from the breakeven: (28 − 29.10) × 100 = −$110.
The losses in the assigned rows are on paper as long as you hold the shares. They become real if you sell. The shares can keep falling, or recover. Try different strikes in the cash-secured put calculator.
The risk in plain words
The most you can make is the premium. The most you can lose is close to the full cash you set aside, because the stock could fall a long way and you would still have to buy at the strike. In the example you are risking up to $2,910 to make $90.
That is similar to the risk of simply buying 100 shares at $29.10. The difference is that with the put, you do not participate if the stock rallies. If the stock goes from $32 to $45, you still make $90, while a shareholder would be up much more.
It also helps to compare it with a bull put spread. A spread adds a lower-strike long put that caps the loss, which needs far less cash but also brings in less premium.
Assignment, step by step
- The stock is below your strike at expiration, or the put buyer exercises early. Most US stock options are American-style, so early assignment is possible.
- Your broker uses your set-aside cash to buy 100 shares per contract at the strike.
- You now own the shares. Your cost per share, counting the premium, is strike − premium.
- From here you own regular shares, with all the ups and downs that come with them.
Some traders then sell covered calls on the assigned shares. People call the cycle of selling puts, getting assigned and selling calls "the wheel." Each step is a separate trade with its own risk; see covered calls explained.
Reading the ticket
- Action: sell to open a put. Make sure it is a put, not a call, and opening, not closing.
- Strike: the price you agree to pay per share.
- Quantity: each contract is 100 shares. Five contracts at a $30 strike means $15,000 of shares you may have to buy.
- Premium / limit: per share. $0.90 means $90 per contract.
- Expiration: how long the obligation lasts.
Plain-English check: "I get $90 now. If the stock is under $30 at expiration, I buy 100 shares for $3,000. My real cost would be $29.10 a share."
Common mix-ups
- Looking only at the premium yield. A 3% premium sounds good until you compare it with the cash at risk. Higher premiums usually mean the market expects bigger moves.
- Selling more contracts than your cash covers. Then it is no longer cash-secured. It depends on margin, which brings much larger risks.
- Assuming assignment only happens at expiration. It can happen earlier on American-style options.
- Mixing up the strike and the stock price. You buy at the strike, not at the current price.
You can close the position early by buying to close the put. If the stock has risen, that usually costs less than you received. If it has fallen, it can cost much more.
FAQ
What is a cash-secured put?
Selling a put option while keeping enough cash to buy the shares if you are assigned, which is the strike times 100 per contract.
How much money do I need for a cash-secured put?
Strike × 100 per contract. A $30 strike needs $3,000. How your broker counts the premium you receive can vary.
What is the breakeven on a cash-secured put?
The strike minus the premium. Selling a $30 put for $0.90 gives a breakeven of $29.10.
What is the worst case on a cash-secured put?
The stock falls sharply and you are assigned, so you buy shares at the strike that are worth much less. If the stock went to $0, the loss would be (strike − premium) × 100 per contract.
Is a cash-secured put the same as buying the stock?
The downside is similar to buying shares at the breakeven price, but the upside is capped at the premium, and you may never end up owning the shares.
Educational only. This page explains order mechanics with example numbers. It is not investment advice, not a recommendation to buy or sell anything, and not a broker. Check your own broker’s rules, fees and assignment terms before you trade.