A cash-secured put means you sell a put option and keep enough cash in your account to buy 100 shares at the strike price. You get paid a premium now. If the stock falls below the strike, you may have to buy the shares. Many people use it as a way to buy stocks they already want, at a lower price.
A simple example
A stock trades at $50 and you would be happy to own it at $45. You sell one put with a $45 strike, 30 days out, for $1.20 per share. You receive $120 and must keep $4,500 in cash set aside.
- The stock stays above $45: the put expires worthless and you keep the $120.
- The stock falls below $45: you are likely assigned and buy 100 shares at $45. Your real cost is $45 − $1.20 = $43.80 per share.
Break-even and maximum loss
| Item | Formula | In this example |
|---|---|---|
| Maximum profit | Premium received | $120 |
| Break-even | Strike − premium | $43.80 |
| Maximum loss | (Strike − premium) × 100, if the stock goes to zero | $4,380 |
The real risk
Falling knives Watch out
Puts pay the most premium on stocks that the market thinks may fall hard. A high premium is often a warning, not a gift. If the stock drops from $50 to $30, you still buy at $45. Only sell puts on companies you would genuinely want to own at the strike price, through a bad stretch.
Why “cash-secured” matters
Some brokers let you sell puts on margin without holding the full cash. That increases your return on paper, but it also means a sharp drop can trigger margin calls. Keeping the full amount in cash keeps the strategy as conservative as it is meant to be.
The “wheel”
Some traders combine this with covered calls: sell puts until assigned, then sell calls on the shares until they are called away, and repeat. It can produce steady income in calm markets, but it still carries the full downside of owning the stock.
Conclusion
A cash-secured put is a limit order that pays you to wait. It is a reasonable tool when you want the stock anyway, and a risky one when you only want the premium.
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