Cash-Secured Put
A cash-secured put is an options strategy where a trader sells a put option while holding enough cash in the account to purchase the underlying shares at the strike price if the option is exercised, combining premium income with a willingness to own the stock at a lower price.
The cash-secured put is one of the most conservative options income strategies and is often described as a disciplined method for acquiring stock at a desired price while collecting premium along the way. When a trader sells a put option on a stock they are willing to own, they receive the premium immediately. If the stock remains above the strike price at expiration, the put expires worthless and the trader retains the full premium. If the stock falls below the strike, the put is exercised and the trader is obligated to buy 100 shares at the strike price — but because they have set aside the cash to do so, no leverage is involved.
As an example, consider a trader who wants to own shares of Coca-Cola (KO) at $55 but the stock is currently trading at $60. Rather than placing a limit order and waiting, they sell a $55-strike put expiring in 30 days for $1.20 in premium. Two outcomes are possible: if KO stays above $55, the put expires worthless and the trader has earned $120 per contract in income. If KO falls below $55, the trader is assigned 100 shares at $55 — which they consider fair value — with an effective cost basis of $53.80 ($55 minus the $1.20 premium received).
The cash-secured put is widely used in individual retirement accounts (IRAs) and standard cash accounts at U.S. brokers because it does not require margin borrowing. FINRA regulations permit this strategy at relatively low options approval levels (typically Level 2), making it accessible to a broad population of retail investors. Unlike a naked put, which uses margin, the cash-secured version requires that the full cash collateral be set aside in the account.
The strategy carries meaningful downside risk if the stock declines sharply. Because the premium income provides only a modest offset to a large drop in share price, a trader assigned 100 shares after a significant decline must decide whether to hold, sell at a loss, or continue writing covered calls against the position to reduce the cost basis further. The latter approach — combining cash-secured puts with covered calls — is sometimes referred to as the wheel strategy.
Understanding the put-call parity relationship is helpful for evaluating cash-secured puts. Synthetically, selling a cash-secured put is economically similar to writing a covered call at the same strike and expiration. Both strategies are long the stock below the strike and flat above it, with the premium income providing a buffer in both directions.