What is a cash-secured put?
In one line: A cash-secured put is a put option you sell while keeping enough cash in your account to buy 100 shares at the strike price if you are assigned.
How it works
You sell one Put option. The buyer pays you a premium today. In return, you promise to buy 100 shares at the Strike price if the buyer wants to sell them to you.
"Cash-secured" means the money for those shares is already in your account. Your broker sets it aside as Collateral until the put expires or you close it. You can't spend that cash on anything else while the put is open.
That's the whole idea. You name a price you'd pay for a stock, and you get paid to wait for it. If the stock never drops that far, the put expires and you keep the premium. If it does drop, you buy the shares at the strike, minus the premium.
It's the first half of the wheel strategy. The second half is the Covered call.
An example (hypothetical)
A made-up stock, XYZ, trades at $50. You'd be happy to own it at $45.
You sell one 30-day put with a $45 strike for $1.00. You collect $100. Your broker sets aside $4,500 (an illustration, not a trade idea).
| XYZ at expiry | What happens | Shares | Premium | Total |
|---|---|---|---|---|
| $30 | Assigned: you buy 100 at $45, worth $30 | −$1,500 | +$100 | −$1,400 |
| $42 | Assigned at $45, worth $42 | −$300 | +$100 | −$200 |
| $44 | Assigned at $45, worth $44 | −$100 | +$100 | $0 |
| $50 | Put expires; no shares | — | +$100 | +$100 |
| $65 | Put expires; you missed the rise | — | +$100 | +$100 |
The most you can make is the $100. The most you can lose is $4,400, if XYZ goes to zero. A math example, not a promise.
Why it matters for sellers
The cash is what makes this a stock decision, not an options bet. You are really saying "I'll buy 100 shares at $45." The put just pays you for saying it.
That's why the stock choice matters more than the premium. Sellers who pick a put for its big premium, on a stock they don't want, end up owning that stock after a fall. A Naked put is the same promise without the cash set aside, and the danger grows from there.
Size it like a share purchase. If $4,500 of XYZ is too much for your account, the put is too big. Many brokers allow cash-secured puts at a basic options approval level; in Canada, whether a TFSA or RRSP allows them depends on the broker, so check yours.
Questions
How much cash do I need for a cash-secured put?
The strike price times 100, for each contract. On a $45 put, that's $4,500. Some brokers subtract the premium you collected.
What happens if the stock drops below the strike?
You'll usually be assigned and buy 100 shares at the strike. The premium lowers your cost a little, but the shares can keep falling after that.
Is a cash-secured put the same as a short put?
A cash-secured put is one kind of Short put. The difference is the cash: a cash-secured put has the full amount set aside, while a naked put uses margin instead.
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