Cash-Secured Put: How It Works, Example and Risks
A cash-secured put sells a put below the current price while holding enough cash to buy the shares. Traders use it to get paid while waiting to buy a stock at a lower price. The main risk is the stock falling well below the strike.
At a glance
| Outlook | bullish |
|---|---|
| Level | beginner |
| Max profit | Premium × 100 |
| Max loss | (Strike − premium) × 100 if the stock goes to zero |
| Breakeven | Strike − premium |
| Greeks exposure | Positive delta, positive theta, negative vega |
| Ideal IV environment | Moderate to high IV |
Payoff diagram
Worked example
With the stock at $50, sell the $48 put for $1.20 and set aside $4,800. If the stock stays above $48 you keep $120. If assigned, you buy 100 shares at an effective $46.80.
How to manage it
- Only sell puts on stocks you're willing to own.
- Close early once most of the premium is captured.
- If assigned, you can start selling covered calls (the wheel).
Risks
- Stock-like downside below the breakeven.
- Cash is tied up for the life of the trade.
- Assignment can happen before expiration.
Questions
How much cash do I need?
Strike × 100 per contract — $4,800 for a $48 put.
Is it the same as a limit order to buy?
Similar, but you're paid premium to wait, and you may miss the stock if it rallies.
Can I lose more than the premium?
Yes. If the stock falls far below the strike you'll own shares worth less than you paid.
Related
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