What is a cash-secured put?
A cash-secured put is selling a put option while keeping enough cash in your account to buy the shares if you're assigned. You collect the premium up front. In exchange, you agree to buy 100 shares per contract at the strike price if the stock is below it at expiry.
How a cash-secured put works
When you sell (write) a put, someone else pays you for the right to sell you a stock at a fixed price — the strike — on or before the expiry date. The payment is the premium, and it's yours to keep whatever happens.
"Cash-secured" means you set aside the full amount you'd need to buy the shares: strike × 100 for each contract. That cash is what makes the trade conservative compared with selling puts on margin.
At expiry, one of two things happens:
- The stock is above the strike: the put expires worthless. You keep the premium and your cash is free again.
- The stock is below the strike: you're assigned and buy 100 shares per contract at the strike. Your real cost is the strike minus the premium you already collected.
US stock options are American-style, so assignment can also happen before expiry — usually when the put is deep in the money.
A worked example
Say a stock trades at US$50. You sell one put with a US$47 strike, 45 days to expiry, for a premium of US$1.20 per share. These numbers are illustrative only.
| Item | Calculation | Result |
|---|---|---|
| Premium collected | US$1.20 × 100 | US$120 |
| Cash set aside | US$47 × 100 | US$4,700 |
| Breakeven at expiry | US$47 − US$1.20 | US$45.80 |
| Return on cash if it expires | US$120 ÷ US$4,700 | ≈ 2.55% in 45 days |
| Maximum loss | (US$45.80 − 0) × 100 | US$4,580 if the stock went to zero |
Why traders use cash-secured puts
- Get paid to wait: if you'd happily own a stock at US$47, selling the put pays you while you wait for that price.
- Time decay works for you: as the option seller, Theta — the daily loss of an option's time value — is on your side.
- A lower effective entry: if assigned, your cost is the strike minus the premium.
- It's the first step of the Wheel: assignment leads naturally into selling covered calls. See how the Wheel works.
The risks
- The stock can fall a long way. You still have to buy at the strike. The premium only cushions the first part of the fall.
- Capped upside. If the stock rallies hard, you keep only the premium and miss the move.
- Cash is tied up. The money set aside can't be used elsewhere until the trade ends.
- Concentration. Selling puts on several similar stocks can turn into one big position in a sell-off.
That's why the stock choice matters more than the premium: only sell puts on companies you'd be comfortable owning at the strike.
How I choose strike and expiry
These are the starting rules taught in TheTradingDad courses, not recommendations for any specific trade:
- Expiry: around 30–45 days. That's where time decay starts to speed up, and it leaves room to manage the trade.
- Strike: below the current price, often around a 0.16–0.30 Delta. A 16-delta strike sits roughly one standard deviation away, using the market's own implied volatility.
- Size: keep each position small enough that being assigned is fine, not frightening.
- Management: decide in advance when you'll take profit, roll or close. In OTM we use the Five Rolling Criteria: Delta, P&L %, days to expiry, implied volatility and portfolio risk.
Cash-secured put vs covered call
| Cash-secured put | Covered call | |
|---|---|---|
| You hold | Cash | 100 shares |
| You sell | A put below the price | A call above the price |
| If assigned | You buy shares at the strike | Your shares are sold at the strike |
| Main risk | Stock falls sharply | Stock falls sharply (you own it); upside capped |