What is a Cash-Secured Put? Definition, Formula, and Example
A cash-secured put is an options strategy where a trader sells a put option while holding sufficient cash to purchase 100 shares at the strike price, generating income while committing to buy the stock at a lower effective price if assigned.
Plain-English Definition
A cash-secured put (CSP) is the sale of a single put option, fully collateralized by cash equal to (strike price × 100 shares × number of contracts). It is the most conservative income strategy in the options menu and the standard "get paid to wait" entry technique used by long-only investors who want to acquire stock below the current market price.
How a Cash-Secured Put Is Calculated
A CSP has three quantitative components:
1. Cash collateral. Strike × 100 × contracts. This sits in the account, earns interest at the broker's cash rate, and cannot be used for other trades.
2. Premium received. The bid the trader sells the put at. Premium / collateral × (365 / DTE) gives an annualized yield.
3. Effective purchase price if assigned. Strike − premium received per share.
Payoff at expiration:
- If stock ≥ strike: put expires worthless. Trader keeps full premium. Max profit = premium × 100.
- If stock < strike: put assigned. Trader buys 100 shares at strike, but cost basis = strike − premium.
- Maximum loss = (strike − premium) × 100, realized only if stock goes to zero.
Breakeven at expiration = strike − premium received.
Worked Example
On April 29, 2026, AAPL trades at $192. A trader who would happily buy AAPL at $185 sells one June 19, 2026 $185 put for $3.50 ($350 in premium). Mechanics:
- Cash held: $185 × 100 = $18,500
- Premium received: $350
- Days to expiration: 51
- Annualized yield if put expires worthless: ($350 / $18,500) × (365 / 51) = 13.5%
- Effective purchase price if assigned: $185 − $3.50 = $181.50
- Discount vs spot: ($192 − $181.50) / $192 = 5.5%
If AAPL closes above $185 on June 19, the trader keeps $350 — a 1.89% return on collateral in 51 days. If AAPL closes at $175, the trader is assigned at $185 (cost basis $181.50) and is now long 100 shares with a $6.50 unrealized loss per share, vs $17 unrealized loss for someone who bought the spot at $192.
When Traders Use It
Three distinct use cases dominate: (1) income generation on cash sitting in a brokerage account, where a 0.5–1.5% monthly yield compounds well above money-market rates; (2) systematic stock acquisition — selling puts at strikes the investor has already decided are fair value, monetizing the wait while watching for entry; (3) wheel strategy entry leg, where assigned shares are then used to write covered calls until called away, then the cycle restarts. Brokers require the lowest options approval level for CSPs since the risk profile is no worse than buying the stock outright.
Limitations and Common Misconceptions
A CSP has the same downside as owning the stock minus the premium — if the underlying drops 50%, the trader loses ~50% on assignment minus the premium received. The strategy is not "free income"; the premium compensates for assumed downside risk. Common errors include selling CSPs on stocks the trader does not actually want to own (premium collection without conviction), choosing strikes too close to spot for marginal premium gains (high assignment probability, low cushion), and ignoring earnings dates or ex-dividend dates that inflate assignment risk. CSPs also tie up capital for the entire trade duration — the opportunity cost vs deploying that cash elsewhere is the strategy's hidden expense.