When Should You Use This Strategy?
Want to own stock at a lower price
Who Benefits Most?
Long-term stock buyers comfortable with assignment
Position Setup
The Cash-Secured Put consists of the following legs:
- Sell 1 95 strike put at $3 premium
Payoff at Expiration
The chart below shows profit and loss across a range of underlying prices for the default cash-secured put setup. Open the interactive calculator to change strikes, premiums, and quantities and see the shape update live.
How Profit and Loss Work
Maximum Profit: $300 per default position
Maximum Loss: $9,200 per default position
Break-even Points: $92
Timing & Time Horizon
30–60 days
Most traders enter this strategy 30–60 days before their expected move, allowing enough time for the position to develop while avoiding excessive time decay on shorter-dated options.
Capital Requirements
High: cash to cover 100 shares at strike
How to Manage the Position
Close profitably at 50–60% profit
- Monitor the position daily, especially as it approaches profitability
- Set clear profit targets and exit rules before entering
- Consider closing early to lock in gains rather than waiting for max profit
- Be prepared to cut losses if the thesis is wrong
Key Risks & What to Watch
- Assignment forces stock purchase
- Capital tied up as opportunity cost
Common Variations
The default setup above is one version of the cash-secured put. Traders adjust strike placement to trade off cost, probability, and payout:
ATM cash-secured put
Sell a put near the current stock price for maximum premium and a higher chance of assignment.
Key difference: Larger premium collected, but assignment (buying the stock) is much more likely.
Best for: Traders who genuinely want to own the stock and are comfortable being assigned.
OTM cash-secured put
Sell a put well below the current price, effectively naming your desired discounted entry price.
Key difference: Smaller premium, but a much lower probability of assignment.
Best for: Traders who prefer to collect income and only buy the stock at a meaningful discount.
Frequently Asked Questions
What happens if I get assigned?
Setup
You buy 100 shares per contract at the strike price, funded by the cash already set aside, and keep the premium collected — effectively buying the stock at a discount to the strike.
How much cash do I need to sell a cash-secured put?
Setup
Enough to buy 100 shares at the strike price per contract (strike × 100), since the position must be fully collateralized rather than sold on margin.
Cash-secured put vs. covered call — which comes first?
Comparisons
Selling a cash-secured put to acquire shares at a discount, then selling covered calls once assigned, is a common combined income cycle sometimes called 'the wheel.'
What if the stock crashes far below my strike?
Greeks & Risk
You're still obligated to buy at the strike price, so losses below the strike are only offset by the premium collected — a cash-secured put carries real downside risk despite the income framing.
Model Before You Trade
Every strategy performs differently based on entry price, strike selection, and premium levels. Use the interactive Cash-Secured Put calculator to model the payoff with your expected entry, strikes, and premiums before committing capital.
Educational information only. This guide explains how the strategy works mathematically and typically behaves. It is not investment advice, and past performance does not guarantee future results. Options trading involves significant risk, including the potential loss of premium paid. Paper trade or use small positions while learning.