The cash-secured put
The cash-secured put is the mirror image of the covered call. You sell one put at a strike below the current price and set aside the cash to buy the shares if assigned. You get paid a premium to agree to buy a stock you already want — at a discount to today’s price.
How it is built
One short put, fully cash-secured. The stock is at $100; you sell the $95 put for $2 and hold $9,500 in reserve. If the stock stays above $95, the put expires worthless and you keep the $2 — a return on your reserved cash. If it falls below $95, you are assigned and buy 100 shares at $95, but your effective cost is $93 (the strike minus the premium you collected).
| Outlook | Neutral to bullish |
|---|---|
| Max profit | The premium collected = $2/share, if the stock stays above $95 |
| Max loss | (Strike − premium) × 100 = $9,300, if the stock goes to zero |
| Breakeven | Strike − premium = $93 |
| Time decay (theta) | Works for you — you are short the put |
You’d happily own the stock at $95 instead of $100. Selling the $95 put pays you $2 today. If the stock never dips to $95, you pocket $2 and repeat. If it does, you buy at a net $93 — the price you wanted, minus a discount. Either outcome is one you chose in advance. That is the appeal: you are paid for patience.
When to use it
Use a cash-secured put when you are willing to buy a stock at a lower price and want income while you wait. Like the covered call, it thrives on elevated implied volatility — higher premiums for the same obligation. Many investors run the two as a cycle: sell puts until assigned, then sell covered calls on the shares they now own — the “wheel.”
Common pitfalls
Selling puts on a stock you don’t actually want. If you’d regret owning it at the strike, the premium isn’t worth the assignment.
Not truly securing the cash. Selling puts on margin turns a conservative income trade into a leveraged one, with far larger risk if the stock gaps down.
What to do with this
Treat the cash-secured put as a paid limit order: you get income for agreeing to buy at your price. With the two income staples covered, the next two lessons turn to protection — starting with the put as insurance.
Now flip from income to insurance: the protective put puts a floor under a stock you own.