A cash-secured put is a way to get paid while you wait to buy a stock you already like. You agree to buy it at a lower price than today’s, set aside the cash to do it, and collect a premium for making that promise. Think of it as a limit order that pays you.
How it works
- You sell a put with a strike below the current price. That gives the buyer the right to sell you 100 shares at the strike before expiration.
- You collect the premium up front. It’s yours no matter what happens.
- You set aside the cash to buy the shares at the strike if you’re assigned. That’s the “cash-secured” part, and it’s what separates this from a naked put.
If the stock stays above the strike, the put expires and you keep the premium. If it finishes below the strike, you buy 100 shares at the strike price, and you still keep the premium.
Max profit, max loss and break-even
| Cash-secured put | |
|---|---|
| Max profit | The premium you collected |
| Max loss | Strike − premium, per share, if the stock goes to zero |
| Break-even at expiration | Strike − premium |
| Effective cost if assigned | Strike − premium |
Worked example
Microsoft ($MSFT) is at $300. You’d be happy to own it at $280, so you sell a one-month $280 put for $4 a share and set aside $28,000.
- MSFT stays above $280: the put expires. You keep $400 and your cash is free again.
- MSFT drops to $270: you’re assigned and buy 100 shares at $280. With the premium, your real cost is $276 a share. That’s $24 below where MSFT was when you sold the put, but $6 above where it’s trading now, so you’re sitting on a $600 paper loss.
The second outcome is the important one to understand. You do get the stock below where it was when you started, but you buy it after it has fallen, so you’re usually underwater on day one. That’s why this only works on stocks you’re glad to hold through a dip.
A quick second example: Tesla ($TSLA) at $250, and you sell a one-month $230 put for $5 ($500). If Tesla stays above $230, you keep the $500. If it drops to $220, you buy at $230, an effective $225 after the premium, $5 a share above the market.
When it makes sense
- You’re bullish long term and want to buy the stock below today’s price.
- You’d genuinely be happy to own it at the strike, even if it keeps falling for a while.
- You want income on cash that’s waiting to be invested.
What to watch out for
- A big drop. You’re on the hook to buy at the strike no matter how far the stock falls. The premium only cushions the first few dollars.
- Missing a rally. If the stock takes off, all you get is the premium, while someone who just bought the shares gets the whole move.
- Cash tied up. The money set aside can’t be used for anything else until the put expires or you close it.
Tips
- Pick the strike you’d actually pay. Not the one with the juiciest premium.
- One to two months out is the usual sweet spot, a decent premium without locking up your cash for too long.
- Only sell puts on stocks you want to own. If you’d panic-sell after assignment, it’s the wrong stock.
Selling puts, getting assigned and then selling covered calls on the shares is the wheel strategy. To compare premiums across different expirations, use the annualized return calculator.