Beginner Strategies: Cash-Secured Puts
Cash-secured puts (CSPs) let you get paid to wait for a lower entry price. You sell a put and set aside enough cash to buy 100 shares if assigned. Think of it as “getting paid for a limit buy.”
Before You Trade
These examples and charts are simplified teaching models. Confirm live pricing, liquidity, and assignment risk in your broker before placing real trades.
CSP Logic & Goals
Get paid for being patient
With a CSP, you collect premium upfront and agree to buy shares at the strike if the stock falls. Your goal is either (1) keep the premium if the stock stays above the strike or (2) buy shares at an effective discount.
Position
Sell 1 put and hold enough cash to buy 100 shares.
Goal
Generate income or acquire shares at a discount.
Risk
Downside similar to owning shares below breakeven.
CSP payoff: premium collected, losses begin below the strike. Breakeven = strike - premium.
Illustrative example only: chart values are simplified to teach mechanics and are not live quotes or trade forecasts.
Strike Selection
Pick a strike you’d love to own
Strike selection is about mindset: choose a price where you are happy owning 100 shares. If you wouldn’t buy the stock at that level, the CSP is too aggressive.
Simple strike framework
Start with a support zone or a valuation price you like, then move one or two strikes lower to add margin of safety. Higher implied volatility lets you move farther out while keeping premium attractive.
CSP vs Limit Buy
Same destination, different path
A limit order gets you into the stock at a set price but pays nothing while you wait. A CSP pays you premium up front in exchange for the same obligation. If the stock doesn’t fall, the CSP wins; if it drops sharply, both approaches face similar risk.
CSP vs limit buy at $95. The CSP earns premium even if the stock never drops to the strike.
Illustrative example only: chart values are simplified to teach mechanics and are not live quotes or trade forecasts.
Greeks In Action
Theta helps, delta hurts during drops
CSPs are short options, so time decay (theta) benefits you. However, delta exposure grows if the stock drops, which means losses accelerate as the put goes in-the-money.
Put delta gets more negative as price falls, increasing downside sensitivity.
Illustrative example only: chart values are simplified to teach mechanics and are not live quotes or trade forecasts.
Premium decays as time passes, which is why CSP sellers love calm markets.
Illustrative example only: chart values are simplified to teach mechanics and are not live quotes or trade forecasts.
Assignment Mindset
Be ready to own the shares
Assignment isn’t a failure. It means you bought shares at the strike, and the premium lowers your cost basis. Plan the position like a stock trade: know your exit, set alerts, and size the position so owning 100 shares feels comfortable.
Healthy CSP mindset
“If I get assigned, I’m happy owning shares at this price.” If that sentence doesn’t feel true, pick a lower strike or skip the trade.
Who This Is For
Beginners who want to get paid while waiting to buy a stock at a lower price, with enough cash set aside to cover assignment.
Learning Objectives
- • Explain the mechanics of a cash-secured put and why you hold cash as collateral.
- • Compare a CSP to a limit buy order and understand the tradeoffs.
- • Calculate breakeven, max profit, and max loss for a CSP.
- • Identify when CSPs work best and when to avoid them.
Risk Note
If the stock drops sharply below your strike, you will be assigned shares at a price well above the market. The premium provides a small cushion, but your downside risk is similar to owning the stock outright. Early assignment can also happen before expiration, especially when a put is deep ITM. Only sell CSPs on stocks you genuinely want to own at the strike price.
Example Walkthrough
Scenario: XYZ is at $100. You sell the $95 put expiring in 30 days for $2.40 ($240 total). You set aside $9,500 in cash to buy 100 shares if assigned.
Best case: XYZ stays above $95
The put expires worthless. You keep the full premium: +$240. You can sell another put next cycle.
Worst case: XYZ drops to $80
You buy shares at $95, but they are worth $80. Loss = ($95 − $80 − $2.40) × 100 = −$1,260. The premium reduces your loss, but you own shares at a big paper loss.
Breakeven: $95 − $2.40 = $92.60. Below $92.60, the trade is a net loss. Max profit: $240 (the premium collected).
Common Mistakes
Selling CSPs on stocks you would not want to own
If you would not buy the stock at the strike price, do not sell the put. Assignment should feel like a win, not a burden.
Oversizing the position
Each CSP ties up the full strike × 100 in cash. Selling too many puts can lock up your entire account and leave no room for adjustment.
Ignoring earnings and events
Selling puts right before earnings can lead to large gaps below your strike. Plan around high-volatility events.
Quick Recap
- • A CSP = sell 1 put + hold enough cash to buy 100 shares. You get paid to wait for a lower entry price.
- • Max profit is the premium collected; max loss is similar to owning the stock (strike − premium, all the way to $0).
- • Only sell CSPs on stocks you would happily own at the strike price—assignment should feel like a discount, not a disaster.
Next lesson
Vertical Spreads (Defined Risk)
Up nextCompare debit vs credit spreads, calculate max risk/reward, and choose the right setup.
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