Cash Secured Put: How It Works, With Example
A cash secured put means selling a put option while keeping enough cash in your account to buy 100 shares at the strike price. You collect the premium immediately. If the stock stays above the strike, the put expires worthless and you keep the premium. If it falls below, you buy the shares at the strike - at an effective price lowered by the premium.
How it works
- Pick a stock you would be happy to own, and an expiration about 30 to 45 days out.
- Sell one put at the price you would be willing to pay for the shares.
- Keep cash equal to the strike times 100 in your account as collateral.
- Keep the premium if the stock stays above the strike, or buy the shares at the strike if assigned.
When to use it
Use it when you are neutral to bullish on a stock you want to own, especially after a sharp pullback toward support. You either earn the premium or buy the stock below where it traded when you sold the put.
Profit, loss and breakeven
Max profit
The premium received.
Max loss
Strike minus the premium, times 100, if the stock goes to zero.
Breakeven at expiration
Strike minus the premium received.
Example trade
XYZ trades at $100. You sell the $95 put for $1.50 ($150) and keep $9,500 in cash as collateral. If XYZ stays above $95, you keep the $150. If it ends below $95, you buy 100 shares at $95, for an effective cost of $93.50 per share - which is also your breakeven.
Cash Secured Put on the Strategy Price Timeline
Example on a $100 stock with 35 days to expiration. The shaded bands show where the stock needs to be at expiration for the trade to profit, partially lose or reach the max loss - the same chart every EasyTrade signal shows.
Swipe to see full chart →Profit zone
Loss zone
Risks to know
- If the stock falls far below the strike, you still have to buy the shares at the strike price.
- It ties up a lot of capital: the full strike value for every contract.
- Profit is limited to the premium, even if the stock rallies strongly.
How EasyTrade manages it
EasyTrade closes cash secured put signals at 50% to 60% of max profit, or rolls the position before assignment. If you are assigned, you can hold the shares and sell covered calls against them.
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