Cash-secured put strategy (CSP)

Search focus: cash secured put · cash secured put strategy · CSP options · sell cash secured put · cash secured put example

A cash-secured put means you sell a put option and set aside enough cash to buy 100 shares at the strike if you are assigned. You collect a premium up front. If the stock stays above the strike, the put may expire worthless and you keep the premium. If the stock falls below the strike, you may buy the shares at the strike (assignment).

Many beginners use CSPs when they are willing to own the stock at a lower effective price and want to be paid while they wait.

Structure

• Short 1 put
• Cash reserved ≈ strike × 100 (broker requirements can vary)

Payoff intuition

• Max profit = premium received (if put expires worthless)
• Risk = stock can fall well below the strike — you still buy at the strike (loss vs market price can be large)
• Break-even ≈ strike − premium per share
• Assignment means you buy 100 shares, not a mystery outcome

Worked example: outcomes at different prices

Stock at $100. Sell the $95 put for $2.00 → $200 credit, ≈ $9,500 cash reserved. Per-share results (×100 for contract totals):

• Stock at $105 or $96: put expires worthless → keep the $200, no shares.
• Stock at $93 (break-even): assigned at $95; effective cost $95 − $2 = $93, the market price → ≈ $0.
• Stock at $80: assigned at $95 with the market at $80 → −$13/share (−$1,300).

Formulas: max profit = $2.00 × 100 = $200; break-even = $95 − $2 = $93; max loss ≈ $9,300 if the stock went to zero.

Choosing the put: strike, delta, and expiry

• Strike and delta: many sellers target ~20–30 delta puts — far enough out to keep assignment unlikely, close enough to earn real premium. The strike should be a price you would genuinely pay for the shares.
• Expiry: 30–45 days is a common balance — theta works for you and you re-evaluate monthly. Weeklies pay less but adjust faster.
• IV and events: puts pay more when IV is high. A put sold just before earnings can be assigned far below the strike after a gap; many beginners sit those out.

Managing the put: rolling and assignment

• Rolling down and out: if the stock nears your strike, buy back the put and sell a lower-strike, later-expiry put — ideally for a net credit. This lowers your effective obligation price and buys time.
• Closing for profit: when the put has decayed to ~50% or less of the premium collected, buying it back banks most of the gain and removes the tail risk.
• Want the shares? Accepting assignment is the simplest management. Changed your mind? Close or roll rather than taking assignment out of inertia.
• Assignment mechanics: usually overnight after expiry (American-style options can be assigned any time) — know your broker's cutoff times.

Common cash-secured put mistakes

• Selling puts without the cash (a naked put) because the premium looked tempting — assignment becomes a margin problem.
• Chasing the highest premium on a crashing stock; it pays a lot because assignment is likely.
• Over-sizing: one contract ties up strike × 100; two or three can lock up the whole account.

When it fits / when it does not

• Fits: you genuinely want to own the shares at a lower price; you can reserve the cash; you accept stock risk if assigned
• Does not fit: you cannot buy the shares; you need the cash for other goals; you are only chasing premium on a name you would hate to own

Link to the Wheel

Many traders connect CSPs to the Wheel strategy: sell puts until assigned, then sell covered calls until shares are called away, then start again.

Open Cash-Secured Put in Builder → Advanced lesson (CSP, Wheel, more) How to read the options chain

Beginner FAQ

What is a cash-secured put?
You sell a put and reserve enough cash to buy 100 shares at the strike if assigned. You keep the premium if the put expires worthless.

What happens if a cash-secured put is assigned?
You buy 100 shares at the put strike. Effective cost is about strike minus premium collected.

Is a cash-secured put the same as the Wheel?
A CSP is the first leg of the Wheel. The Wheel continues by selling covered calls after you are assigned shares.

How much cash do I need to reserve for a CSP?
Roughly the strike price × 100 per contract — enough to buy the shares if assigned. Broker requirements vary.

What does "rolling down and out" mean?
Buying back your short put and selling a lower-strike, later-expiry put — ideally for a net credit — to lower your obligation price and buy time.

Should I sell puts right before earnings?
The IV premium is tempting, but a gap down can leave you owning shares far below the strike. Many beginners sit out binary events.

Next: Print the options cheat sheet or open this setup in the Builder.