Cash-Secured Put¶
OVERVIEW¶
A cash-secured put (CSP) is the sale of a single put option fully collateralized by cash equal to strike price × 100 shares × number of contracts. It is the most conservative income strategy in the options menu and the standard entry technique used by long-only investors who want to acquire stock below the current market price.
Note
Brokers require the lowest options approval level for CSPs. The risk profile is no worse than buying the stock outright.
KEY COMPONENTS¶
| Component | Formula | Purpose |
|---|---|---|
| Cash collateral | Strike × 100 × contracts | Held in account; cannot be used for other trades |
| Premium received | Bid price at time of sale | Income collected upfront |
| Annualized yield | (Premium ÷ Collateral) × (365 ÷ DTE) | Normalizes return across trade durations |
| Effective purchase price | Strike − premium per share | Cost basis if assigned |
| Breakeven | Strike − premium received | Price at which trade is flat at expiration |
PAYOFF STRUCTURE¶
| Scenario at Expiration | Outcome |
|---|---|
| Stock ≥ strike | Put expires worthless; trader keeps full premium |
| Stock < strike | Trader is assigned 100 shares at strike; cost basis = strike − premium |
| Stock → zero | Maximum loss = (strike − premium) × 100 |
Tip
Maximum profit is always capped at the premium received. The strategy does not benefit from upside moves in the underlying.
WORKED EXAMPLE¶
Setup — April 29, 2026
- AAPL spot price: $192.00
- Put sold: June 19, 2026 $185 put at $3.50
- Contracts: 1
- DTE: 51
| Metric | Value |
|---|---|
| Cash held as collateral | $18,500 |
| Premium received | $350 |
| Annualized yield (if expires worthless) | 13.5% |
| Effective purchase price if assigned | $181.50 |
| Discount vs spot | 5.5% |
Outcome A — AAPL closes above $185 Trader keeps $350 premium. Return on collateral: 1.89% in 51 days.
Outcome B — AAPL closes at $175 Trader is assigned 100 shares at $185. Cost basis is $181.50, producing a $6.50 unrealized loss per share — versus a $17.00 loss for a trader who bought at spot $192.
COMMON USE CASES¶
| Use Case | Description |
|---|---|
| Income generation | Collect 0.5–1.5% monthly yield on idle cash; compounds above money-market rates |
| Systematic stock acquisition | Sell puts at pre-determined fair-value strikes; get paid while waiting for entry |
| Wheel strategy entry leg | On assignment, write covered calls against shares until called away; repeat cycle |
LIMITATIONS AND MISCONCEPTIONS¶
Note
A CSP carries the same downside as owning the stock outright, minus the premium received. A 50% drop in the underlying produces roughly a 50% loss on assignment.
Common errors to avoid:
- Selling CSPs on stocks you do not want to own — premium collection without conviction
- Choosing strikes too close to spot for marginal gains — high assignment probability with minimal cushion
- Ignoring earnings or ex-dividend dates that inflate assignment risk
- Overlooking opportunity cost — capital is locked for the full trade duration
Tip
The premium is not free income. It is compensation for the downside risk you have agreed to absorb.