Cash-Secured Put Strategy — Guide, Income & Calculator

A cash-secured put is an income-generating strategy that involves selling a put option while holding enough cash to purchase 100 shares at the strike price. This allows you to generate income from premium collection while potentially acquiring stock at desired levels.

Use the interactive chart below or jump to the setup guide to understand strike selection and cash requirements for this conservative income strategy.

Interactive Payoff Chart

When to Use Cash-Secured Puts

• Outlook: Neutral to slightly bullish; willing to own the stock at lower prices.
• Stock selection: Companies you'd be happy to own long-term.
• Income generation: Seeking conservative income from cash positions.
• Value investing: Want to acquire quality stocks at discounted prices.

Setup: Strike Selection & Cash Requirements

Cash Collateral

Set aside cash equal to 100 shares at the strike price (strike × 100). This cash serves as collateral and earns the option premium.

Strike Selection

1. Support levels: Choose strikes near technical support where you'd want to buy.
2. Value zones: Select strikes representing good value for the underlying stock.
3. Delta consideration: 0.15-0.30 delta strikes balance premium and assignment probability.
4. Price targets: Use strikes where you genuinely want to own the stock.

Expiration

• 30–45 DTE optimizes time decay and premium collection.
• Avoid earnings dates unless seeking higher premium.
• Consider ex-dividend dates that may affect assignment probability.

Income vs. Assignment Balance

Balance premium income with assignment probability. Lower strikes reduce assignment risk but offer less premium; higher strikes do the opposite.

Want to find optimal entry points? Try the Cash-Secured Put Calculator to compare premium income vs. assignment probabilities.

Payoff, Breakeven & Greeks

• Max Profit: Premium received (if stock stays above strike).
• Max Loss: Strike price minus premium (if stock goes to $0).
• Breakeven: Strike price minus premium received.

Greeks

• Delta: Negative; loses money as stock price falls.
• Theta: Positive; benefits from time decay.
• Vega: Negative; hurt by rising implied volatility.
• Gamma: Negative; delta becomes more negative as stock falls.

Management & Assignment

• Profit taking: Close put when 75-90% of premium is captured.
• Rolling: Roll to next expiry and/or lower strike to avoid assignment.
• Assignment: Welcome assignment if you want to own the stock at that price.
• Early assignment: Monitor before ex-dividend dates for dividend-paying stocks.

Adjustment Techniques

• Rolling down: If stock falls, roll to lower strike to reduce assignment risk.
• Rolling out: Extend time to collect more premium and let stock recover.
• Buy-to-close: Close put to avoid assignment when no longer wanting stock.

Worked Example (Illustrative)

XYZ trading at $52. Sell one $50 put for $1.50 with 30 days to expiration. Set aside $5,000 cash as collateral.

• Max profit: $1.50 per share ($150 total) if XYZ stays above $50.
• Effective purchase price: $48.50 if assigned ($50 - $1.50 premium).
• Return on cash: 3% for 30 days ($150/$5,000).

If XYZ stays above $50, keep the $150 premium and can repeat the strategy. If assigned, you own 100 shares at an effective cost of $48.50.

Frequently Asked Questions

Disclaimer

This page is for educational purposes only and is not investment advice. Options involve risk and are not suitable for all investors. Consider consulting a qualified professional. Examples are illustrative and exclude fees/slippage.

Sources & further reading: Cboe Options Education · OCC Investor Resources