What Is a Cash Secured Put?
A cash-secured put is an options strategy where you sell a put option while holding enough cash in your account to buy the underlying stock if the option is exercised. Unlike naked puts that use margin, cash-secured puts require the full potential purchase amount as collateral. This makes them one of the safest ways to sell options because you can always fulfill your obligation to buy the shares.
The cash-secured put strategy serves a dual purpose: if the stock stays above the strike price, you earn premium income. If the stock drops below the strike price and you are assigned, you acquire shares at a net cost below the strike price (strike minus premium received). Either way, you generate income or buy stock at your target price, which is why this strategy is favored by both income investors and value investors looking to enter positions at a discount.
A cash-secured put is like placing a limit buy order and getting paid to wait. If you want to buy a $200 stock at $190, selling a $190 put for $4.00 gives you a $186 effective entry price while earning $400 per contract if the stock never dips to $190.
Cash Secured Put Formulas
- 1Cash required = $190 x 100 = $19,000
- 2Gross premium = $4.00 x 100 = $400
- 3Net premium = $400 - $0.65 = $399.35
- 4Return on capital = $399.35 / $19,000 = 2.10%
- 5Annualized return = 2.10% x (365/45) = 17.04%
- 6Breakeven price = $190 - $4.00 = $186.00
- 7Downside protection = ($200 - $186) / $200 = 7.0%
Optimal Cash Secured Put Parameters
| Parameter | Conservative | Moderate | Aggressive |
|---|---|---|---|
| Strike Selection | 10-15% OTM | 5-10% OTM | ATM to 5% OTM |
| Delta | 0.10 - 0.15 | 0.20 - 0.30 | 0.30 - 0.50 |
| Days to Expiration | 30-45 DTE | 21-45 DTE | 7-21 DTE |
| Target Return/Trade | 1-2% | 2-3% | 3-5% |
| Close at Profit | 50% | 50-65% | 65-80% |
| Max Position Size | 3% of portfolio | 5% of portfolio | 8% of portfolio |
Managing Cash Secured Put Positions
CSP Trade Management Workflow
Cash-secured puts are the first leg of the popular Wheel Strategy. If assigned shares, you then sell covered calls against them for additional income. If shares are called away, you return to selling cash-secured puts. This cycle generates consistent income from both sides of the options chain.