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Trading Strategies

Cash-Secured Put

Selling a put while holding cash to buy 100 shares at the strike if assigned. A way to collect premium or get paid to wait for a lower entry.

What is a cash-secured put?

A cash-secured put is a strategy where you sell (write) a put option while holding enough cash in your account to buy 100 shares of the stock at the strike price. If the put is assigned, you have the cash ready to take delivery.

Selling a put means you collect the premium up front. In exchange, you agree to buy 100 shares at the strike price if the stock closes below that level at expiration.

Why traders use it

  • Get paid to wait for a lower price. If you would be happy to own the stock at the strike anyway, collecting premium while you wait improves your cost basis.
  • Income in a sideways market. If the stock stays above the strike, the put expires worthless and you keep the premium.
  • Defined, approvable risk. Most brokers approve cash-secured puts at Level 2, the same tier as buying calls and puts.

The catch

If the stock drops well below the strike, you still have to buy at the strike. Your cost basis is strike minus premium collected, but you can still take real losses if the stock crashes. Only use this strategy on tickers you actually want to own at the strike price.

Related Terms

Assignment (Options)

When the seller of an option is forced to fulfill the contract because the buyer exercised. Happens randomly and cannot be refused.

Covered Call

An options strategy where you own 100 shares of a stock and sell a call option against it, collecting premium income in exchange for capping your upside.

Options

Contracts that give the buyer the right, but not the obligation, to buy or sell a stock at a specific price before a specific date.

Put Option

A contract that gives the buyer the right to sell 100 shares at a set price before a set date. Bought to bet on a drop or hedge a long position.