A cash-secured put generates income by selling the right to buy stock at a price below where it currently trades. You collect premium upfront and either keep it if the stock stays above your strike, or buy the shares at a price you already decided you'd accept.
You sell a put option on a stock you'd be willing to own. You set aside enough cash to buy 100 shares at the strike price — that's what "cash-secured" means. You collect the premium immediately. If the stock stays above your strike at expiration, the put expires worthless and you keep the premium. If the stock falls below your strike, you buy 100 shares at the strike price using your reserved cash.
This strategy is often described as getting paid to wait to buy stock you already want. You choose a price you'd be happy to pay, sell the put there, and collect income while you wait for the stock to come to you.
Example: A stock is at $50. You'd be willing to own it at $45. You sell the $45 put expiring in 30 days for $1.20 per share ($120 total). You set aside $4,500 in cash.
If the stock stays above $45: the put expires worthless. You keep $120 and your cash. You can repeat the trade next month.
If the stock falls to $43: you buy 100 shares at $45. Your effective cost after the premium: $43.80 per share — slightly better than the market price at expiration.
Maximum profit: The premium received. In the example, $120. This is the most you can make regardless of how high the stock goes.
Maximum loss: Strike price minus premium received, times 100. In the example: ($45 − $1.20) × 100 = $4,380. This occurs if the stock falls to zero — the same risk as buying the stock at $43.80.
Breakeven: Strike price minus premium. In the example: $45 − $1.20 = $43.80.
You want to buy a stock but think it's slightly overvalued at the current price. Selling a put at your target entry price pays you to wait for the stock to come to you.
You want to generate income on idle cash. If you have cash in an account waiting to be deployed, a cash-secured put generates yield on that cash rather than letting it sit.
Implied volatility is elevated. Higher IV means larger premiums. Selling puts during high IV periods collects more income for the same obligation.
You don't actually want to own the stock. If the stock falls and you get assigned, you'll own 100 shares. Only sell puts on stocks you'd genuinely be willing to hold at the strike price.
The stock is in a clear downtrend. Catching a falling knife through put selling means you may end up owning shares that continue to decline. A falling trend is not a buying opportunity — it's a warning.
How is a cash-secured put different from a covered call?
They're the options equivalent of each other. A cash-secured put lets you buy stock at a discount. A covered call lets you sell stock at a premium. Both generate income with defined risk. Many traders cycle between the two — this is called "the wheel."
What strike should I choose?
Most sellers choose a strike 5–10% below the current price — far enough to provide a margin of safety, close enough to collect meaningful premium. The further OTM the strike, the less premium you collect but the less likely you are to get assigned.
What happens if I'm assigned?
Your broker buys 100 shares at the strike price using your reserved cash. You now own the stock at your target entry. Many traders then sell a covered call against those shares to continue generating income while holding.
Do I need a margin account for a cash-secured put?
No. The "cash-secured" part means you're holding enough cash to cover assignment — so no margin is required. Most brokerages allow cash-secured puts in standard accounts.