Cash-Secured Put
A cash-secured put sells an out-of-the-money put while holding enough cash to buy the shares at the strike — an income strategy that either collects premium or acquires stock at a discount to the current price.
- Max profit
- 400
- Max loss
- -9600
- Breakeven(s)
- 96.0
When to use
Use when you are willing to own the underlying at the strike price and want to either collect premium if it stays above the strike, or acquire shares at an effective cost basis lower than today's price. Best used on stocks you genuinely want to own.
Risk profile
Maximum profit is the premium collected; it is achieved if the stock finishes above the short put strike at expiration. Risk is substantial — equivalent to owning the stock at the strike price minus the premium — if the stock falls sharply. The cash held as collateral limits broker margin risk but does not protect against a large move down.
FAQ
What is the effective purchase price if I am assigned on a cash-secured put?
Your effective cost basis is the put strike minus the premium received. For example, selling the 100 put for $4 means you acquire shares at an effective price of $96 if assigned.
How is a cash-secured put related to a covered call?
They have the same risk/reward profile at expiration — both are synthetically equivalent to a short put. The covered call involves already owning stock; the cash-secured put is the entry mechanism to potentially acquire it.
Should I sell a cash-secured put on a stock I do not want to own?
No. If the stock drops sharply you will be assigned 100 shares at the strike price. Only sell cash-secured puts on stocks you would be comfortable holding long-term at that price.