Cash-secured put
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A cash-secured put is a put option that is sold while the seller keeps enough cash to buy 100 shares at the strike price if the put is assigned.
Key points
- The seller receives the premium and takes on the obligation to buy 100 shares at the strike price.
- The most the position can make is the premium, however far the stock rises.
- The loss grows as the stock falls below the break-even, down to the strike price less the premium if the stock falls to $0.
- The cash makes sure that the shares can be paid for. It does not reduce what the position can lose.
At a glance
| Outlook | Neutral to moderately bullish, and willing to own the stock at the strike price |
|---|---|
| Setup | Sell 1 put and keep cash equal to the strike price times 100 |
| Maximum gain | The premium received |
| Maximum loss | The strike price less the premium, per share, with the stock at $0 |
| Break-even at expiration | The strike price less the premium |
| Time decay | Works for the position |
| Volatility | A rise in implied volatility works against the position, slightly |
| Assignment risk | On any business day, and expected at expiration when the put is in the money |
| Capital needed | The strike price times 100, of which the premium covers a part |
On this page
A cash-secured put is one of the simplest positions in written options. It has one leg and one obligation, and its risk is close to the risk of owning the stock.
What a cash-secured put is
The seller writes one put and receives the premium. From that moment until the put expires or is closed, the seller is obliged to buy 100 shares at the strike price if the put is assigned.
The put is called cash-secured because the seller sets aside the full purchase price: the strike price times 100, in cash or in Treasury bills. A put with a strike price of $50 is secured by $5,000. The premium received counts toward that amount.
How a cash-secured put makes and loses money
At expiration there are two outcomes.
- The stock is at or above the strike price. The put expires worthless and the seller keeps the premium. This is the maximum gain, and it is the same at every price above the strike.
- The stock is below the strike price. The put is assigned and the seller buys 100 shares at the strike price. The result is the premium less the amount by which the stock stands below the strike.
| Stock price at expiration | Profit or loss, per share | Profit or loss, per contract |
|---|---|---|
| $35 | -$13.50 | -$1,350 |
| $48.50 | $0 | $0 |
| $50 | +$1.50 | +$150 |
| $52 | +$1.50 | +$150 |
| $60 | +$1.50 | +$150 |
The break-even at expiration is the strike price less the premium. Below it the position loses one dollar per share for every dollar of the stock.
Example of a cash-secured put
What happens to a cash-secured put before expiration
The position gains when the put becomes cheaper and loses when it becomes more expensive, because ending it means buying the put back.
Three things move the premium. A rise of the stock lowers it and a fall raises it. The passing of time lowers it, which works for the seller every day. A rise in implied volatility raises it, which works against the seller even when the stock has not moved.
A cash-secured put can therefore show a loss before expiration while the stock is still above the break-even. The line of the payoff diagram holds on the expiration date only.
What happens when a cash-secured put is assigned
On assignment the seller buys 100 shares per contract at the strike price, and the cash that was kept pays for them. The premium stays with the seller. The shares are paid for at the strike price, and the premium already received lowers what they cost: their cost basis is the strike price less the premium.
Assignment is expected at expiration when the put is in the money. It can also come earlier, on any business day, most often when the put is deep in the money and has little time value left. After assignment the position is a position in shares, with the full risk of the stock.
How a cash-secured put position is managed
The seller of a put has four ways to end or change the position before or at expiration.
| Action | What it does | What it costs |
|---|---|---|
| Let the put expire | The obligation ends when the put is out of the money at expiration | Nothing |
| Buy to close | Ends the obligation at once | The premium of the put at that time |
| Roll | Closes the put and sells another with a later expiration date, another strike price, or both | Two trades. The loss on the first put is realized |
| Accept assignment | The shares are bought at the strike price | The strike price times 100 |
Rolling a put that has moved against the seller does not remove the loss. It books the loss on the first put and opens a new obligation that lasts longer.
How a cash-secured put compares with buying the stock
A cash-secured put is used by investors who are willing to own the stock at the strike price. It is not the same as buying the stock, because assignment is not certain.
| XYZ at expiration | 100 shares bought at $52 | 50 put sold for $1.50 |
|---|---|---|
| $70 | +$1,800 | +$150 |
| $55 | +$300 | +$150 |
| $50 | -$200 | +$150 |
| $47 | -$500 | -$150 |
| $40 | -$1,200 | -$850 |
The seller of the put is ahead when the stock falls or stays where it is, by the premium and by the distance between the stock price and the strike price. The buyer of the stock is ahead when the stock keeps rising, because the put is then never assigned and its seller owns no shares.
What can go wrong with a cash-secured put
The gain is small and the loss can be large. In the example the seller makes $150 at best and loses $850 with the stock at $40. One large fall can take away the premiums of many months.
The seller does not take part in a rise. If the stock goes from $52 to $70, the result is the premium of $150, and the shares were never owned.
The obligation is a commitment of cash. Until the put expires or is bought back, the $5,000 cannot be used for anything else, and the seller has agreed to a purchase at $50 whatever happens to the company in the meantime. An earnings announcement or other news during the life of the put can move the stock far below the strike price overnight. The worst case is a stock that becomes worthless.
Questions and answers
Is a cash-secured put less risky than owning the stock?
Only by the premium. If the stock falls, the seller of the put loses almost what a shareholder loses, less the premium received. If the stock rises, the shareholder gains without limit and the seller of the put gains the premium and nothing more.
What happens if the stock is above the strike price at expiration?
The put expires worthless. The seller keeps the premium, the obligation ends and the cash is free again.
Terms used on this page
- Cash-secured put
- A put that is sold while the seller keeps enough cash to buy the shares at the strike price if the put is assigned.
- Put option
- An option that gives its holder the right to sell the underlying shares at the strike price. The writer of a put must buy the shares at that price if the put is assigned.
- Premium
- The price of an option, quoted per share. One standard contract covers 100 shares, so a premium of $1.50 is $150 per contract.
- Assignment
- The notice to the writer of an option that a holder has exercised it, which obliges the writer to deliver (a call) or to buy (a put) the shares at the strike price.
- Break-even
- The price of the underlying at expiration at which a position neither makes nor loses money. For a long call it is the strike price plus the premium paid; for a short put, the strike price less the premium received.
- Cost basis
- What a position cost, per share. Shares bought through an assigned put are paid for at the strike price, and the premium received for the put lowers their cost - the strike price less the premium.
- Rolling
- Closing an option position and opening another on the same underlying with a later expiration date, another strike price, or both. A roll is two trades, each with its own cost.
Sources
- Cash-Secured Put, The Options Industry Council (read 29 September 2026).
- Naked Put (Uncovered Put, Short Put), The Options Industry Council (read 29 September 2026).
- Characteristics and Risks of Standardized Options, The Options Clearing Corporation (read 29 September 2026). The options disclosure document, edition of June 2024.
- Exercising Options, The Options Industry Council (read 29 September 2026).
- Options Assignment, The Options Industry Council (read 29 September 2026). Frequently asked questions.
- Options Glossary, The Options Industry Council (read 29 September 2026).