What Is Cash-Secured Put?
A cash-secured put involves selling a put option (collecting premium) while setting aside enough cash to purchase the underlying stock at the strike price if assigned. If the stock stays above the strike at expiration, the put expires worthless and the seller keeps the premium.
If the stock drops below the strike, the put may be exercised and the seller is obligated to buy 100 shares at the strike price (offset by the premium received, so effective cost is strike minus premium). Used as a way to buy stock at a discount on a name you already wanted to own.
Cash-secured puts are bullish-to-neutral. The seller wins in three scenarios: stock rises, stays flat, or drops modestly. The seller loses if the stock crashes (gets assigned shares at a strike that's well above current price). Always size the position assuming worst-case assignment — never sell puts on a name you wouldn't want to own at the strike.
Related terms
- Options Contract — A derivative giving the right (but not obligation) to buy or sell an asset at a set price by a set date.
- Covered Call — Selling a call option against shares you already own to collect premium.
- Delta — Sensitivity of an option's price to a $1 change in the underlying.
- Theta — Time decay — how much an option loses in value per day as expiration approaches.