Cash-Secured Put
Quick Definition
An options strategy where a trader sells a put option while holding enough cash to purchase the underlying stock if assigned.
What Is Cash-Secured Put?
A cash-secured put involves selling (writing) a put option while keeping sufficient cash in the account to buy the underlying asset at the strike price if assigned. This strategy generates income from the premium received while expressing a willingness to buy the stock at a lower price. If the stock stays above the strike price, the put expires worthless and the trader keeps the premium. If the stock falls below the strike, the trader must buy shares at the strike price, but the effective purchase price is reduced by the premium received. Cash-secured puts are popular among value investors as a way to get paid while waiting for a stock to reach their desired entry price. The strategy has the same risk profile as a covered call.
Cash-Secured Put Example
- 1You want to buy AAPL at $170. You sell the $170 put for $4, setting aside $17,000 in cash. If AAPL drops below $170, you buy at an effective price of $166
- 2A trader sells monthly cash-secured puts on quality stocks, collecting 1-2% premium per month while waiting to acquire shares at discount prices
Related Terms
Put Option
A contract giving the holder the right, but not the obligation, to sell an underlying asset at a specified price within a specified time period.
Covered Call
An options strategy where an investor sells call options against shares they already own, generating income from the premium while capping upside potential.
Wheel Strategy
A systematic options income strategy that cycles between selling cash-secured puts and covered calls on the same underlying stock.
Options Assignment
The process by which an option seller is obligated to fulfill the terms of the contract when the buyer exercises their right.
Naked Option
An option sold without holding the underlying asset or an offsetting position, exposing the seller to theoretically unlimited risk.
Call Option
A contract giving the holder the right, but not the obligation, to buy an underlying asset at a specified price within a specified time period.
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