What Is Cash-Secured Put?
A cash-secured put is selling a put option while holding enough cash to buy 100 shares at the strike. It generates income and is a way to buy stocks at a discount.
Definition
A cash-secured put (CSP) is selling a put option while holding cash equal to the obligation to buy 100 shares at the strike price. In exchange for the premium, you accept the obligation to buy 100 shares at the strike if the stock falls below it.
It's a bullish-to-neutral strategy — you profit if the stock stays flat or rises (put expires worthless, you keep the premium). You get assigned if the stock falls below the strike, effectively buying shares at a lower price than the current market, partially offset by the premium collected.
Combined with covered calls, the cash-secured put forms the 'wheel strategy': sell CSPs until assigned, then sell covered calls on the shares until called away, then repeat.
Real-World Example
Stock XYZ trades at $50. You sell a $45 put for $2 ($200), holding $4,500 in cash as collateral. Scenario 1: XYZ stays above $45 — put expires worthless, you keep $200 (4.4% return on $4,500). Scenario 2: XYZ drops to $40 — you're assigned 100 shares at $45, but your net cost is $43 ($45 - $2 premium). You now own shares at a discount vs the original $50 price.
Why It Matters
Cash-secured puts are one of the most practical options strategies for patient investors who want to own a stock at a discount — you get paid to wait for your price while collecting income on cash sitting in your account.
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Frequently Asked Questions
Is a cash-secured put the same as selling a naked put?
No — a cash-secured put requires you to hold enough cash to buy the shares if assigned, making it low-risk. A naked put has no cash reserved as collateral, using margin instead. Cash-secured puts are allowed in standard options accounts; naked puts require higher approval levels and margin.
What if the stock crashes after I sell a cash-secured put?
If the stock crashes far below your strike, you'll be assigned shares at a price well above market. Your net cost is the strike minus the premium collected. This is the main risk — you effectively own a losing stock position. Only sell CSPs on stocks you'd genuinely want to own at the strike price.
What is the wheel strategy?
The wheel strategy combines CSPs and covered calls: sell a CSP → get assigned shares → sell covered calls on those shares → shares get called away → sell CSPs again. Each leg generates premium income. It works best on stable, range-bound stocks with decent volatility.
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