Strategy guide
Cash-Secured Put Strategy
A cash-secured put is a short put backed by enough cash to buy 100 shares per contract at the strike if the option is assigned.
Strategy summary
- Market outlook
- moderately bullish, neutral
- Risk type
- undefined
- Capital requirement
- Strike × 100 × contracts in cash
- Maximum profit
- Premium received if the put expires worthless
- Maximum loss
- Strike minus premium, if the stock falls to zero
- Theta / vega
- positive / negative
- Assignment risk
- high
- Typical use
- Income and opportunistic share accumulation below the market
Payoff at expiration
- Max profit$180.00
- Max loss-$9,320.00
- Breakeven$93.20
How CSP works
The premium lowers your effective purchase price, but the obligation to buy is real: below the breakeven you own a falling stock at the strike. Sizing and strike choice matter more than the headline yield.
Exact option legs
Sell 1 put per 100 shares you are willing to own
- SELL 1 × $95.00 put expiring 2026-01-16 at $1.80
Payoff, breakeven and risk
At expiration the position is worth the intrinsic value of each leg. The maximum profit is $180.00, the maximum loss is -$9,320.00, and the position breaks even at $93.20.
Worked example
With the underlying at $100.00:
- Selling the 95 put for 1.80 collects $180 per contract.
- Cash required is $9,500 and the breakeven is $93.20.
- Assignment means buying 100 shares at $95, an effective $93.20 after premium.
Strike selection
Choose a strike where you would genuinely be willing to own the shares and where the breakeven sits below a level you expect to hold. Higher strikes collect more premium and carry more downside risk.
Expiration selection
Shorter expirations decay faster but expose you to more assignment decisions; longer expirations collect more premium but tie up cash and carry more event risk.
Effect of time decay
This structure is positive on theta: net time decay works in its favour.
Effect of implied volatility
It is negative on vega: falling implied volatility helps.
Effect of stock movement
The position suits a moderately bullish or neutral view, and it is tested most when the underlying moves outside the modelled strikes.
Assignment considerations
Assignment risk is high. Short legs can be assigned, especially when they are in the money or before a dividend; long legs have no obligation but can be exercised.
When it works poorly
- Ahead of a binary event such as earnings where the stock can gap through the strike.
- When implied volatility is low and the premium does not compensate for the risk.
- On a leveraged or illiquid underlying where assignment is hard to manage.
Common mistakes
- Treating the premium as free income and ignoring that downside is large and open-ended.
- Selling a strike above the price you would actually pay for the shares.
- Concentrating one ticker across multiple contracts so a single gap dominates the account.
Tax caveat
Option outcomes can receive different tax treatment from share trades, and assignment changes the holding period and cost basis. This is general information, not tax advice; confirm your situation with a qualified professional.
FAQ
- What is the maximum loss on a cash-secured put?
- The strike minus the premium received, if the stock falls to zero. The loss is large and is not capped by the premium.
- Do I need the full cash to sell a cash-secured put?
- Yes. Cash-secured means you hold strike x 100 x contracts so assignment cannot create a margin call.
- Is a cash-secured put the same as a short put?
- A short put can be margin-secured or naked; a cash-secured put specifically holds the assignment cash.
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