Strategy Lesson
Cash-Secured Puts
A cash-secured put is an options strategy where you sell a put option and keep enough cash available to purchase the shares if you are assigned.
What Is a Cash-Secured Put?
When you sell a cash-secured put, you receive premium in exchange for accepting the obligation to buy shares at the strike price if the option is assigned.
The "cash-secured" part means you keep enough cash available to purchase the shares covered by the contract.
How Much Cash Is Required?
A standard equity option contract typically represents 100 shares. The basic cash requirement can therefore be calculated as:
Strike Price × 100 Shares × Number of Contracts
For example, selling one put with a $50 strike would generally require $5,000 of cash to purchase 100 shares if assigned.
A Simple Example
Imagine a stock is currently trading at $55 per share and you sell one put option with the following terms:
Current Stock Price
$55.00
Strike Price
$50.00
Premium
$1.00 per share
Cash Secured
$5,000
Because one contract represents 100 shares, a $1.00 premium would equal $100 of premium received before fees.
Breakeven Price
A simplified expiration breakeven for a cash-secured put is:
Strike Price − Premium Received Per Share
In our example: $50 strike − $1 premium = $49 breakeven at expiration, before fees and taxes.
What Can Happen at Expiration?
Stock Finishes Above the Strike
The put may expire worthless. In that case, the seller generally keeps the premium and the secured cash is no longer needed for that expired contract.
Stock Finishes Below the Strike
The seller may be assigned and required to purchase 100 shares per contract at the strike price.
The Position Is Closed Early
A seller can generally buy back the put before expiration. Whether that creates a profit or loss depends on the price paid to close compared with the premium originally received, along with fees.
Understanding Assignment
Assignment means the put seller must fulfill the obligation of the contract and purchase the shares at the strike price.
For this reason, a cash-secured put should not be viewed as simply collecting premium. The possibility of owning the underlying shares is an important part of the strategy.
Assignment can occur before expiration as well, so sellers should understand the obligation throughout the life of the contract.
Why Do Traders Use Cash-Secured Puts?
Some investors use cash-secured puts when they are willing to purchase shares of a stock or ETF at a particular price while receiving premium for taking on the obligation.
Others may use the strategy primarily to generate option premium while accepting the possibility of assignment.
Key Risks
Stock Price Decline
If the underlying falls substantially below the strike, the shares you are required to purchase may be worth much less than the price you must pay.
Limited Premium
The premium received is limited, while the underlying stock can decline substantially.
Assignment Risk
The seller must be prepared to purchase the shares if assigned.
Capital Is Committed
Cash securing the put may be unavailable for other investments while the position remains open.
Important Numbers to Know
Premium Received
Premium per share × 100 × number of contracts.
Cash Required
Strike price × 100 × number of contracts.
Breakeven at Expiration
Strike price − premium received per share, before fees and taxes.
Return on Cash
Premium received ÷ cash required × 100.
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Cash-Secured Puts for Beginners
A supporting OptionEdge video can be added here so visitors can read the lesson first and then watch the strategy explained visually.
Watch on YouTubeKey Takeaway
A cash-secured put generates premium in exchange for accepting the obligation to purchase shares at the strike price. The strategy should be evaluated based on both the premium opportunity and the downside risk of owning the underlying shares.
For educational and informational purposes only. Nothing on The OptionEdge constitutes financial or investment advice. Options involve risk and may not be suitable for all investors.