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A cash-secured put example, start to finish, including the part that goes wrong

Most examples stop at "you keep the premium." This one keeps going. The stock falls through the strike, the shares arrive, and the loss is bigger than the premium. Here is the whole thing in numbers.

Options guide · 8-minute read · Updated 2026-10-26

The setup (an illustration, not a trade idea)

A made-up stock, XYZ, trades at $50. You'd be happy to own it at $45.

You sell one 30-day Put option with a $45 strike for $1.00. Two things happen right away:

• $100 lands in your account (the premium, $1.00 × 100 shares).
• $4,500 is set aside (the cash to buy 100 shares at $45).

Your break-even on the shares is $45 − $1 = $44. Above $45 at expiry, the put expires and you keep the $100. That is the version every example shows. This page shows the other version.

Week 1 and 2: it looks fine

XYZ drifts between $48 and $51. The put's price falls to about $0.60 as the days melt away. On paper you are up $40.

Nothing to do. This is the easy part, and it's why people like the wheel strategy. You are being paid to wait.

Week 3: the stock falls

XYZ drops to $44 on bad news. The put is now worth about $1.80. On paper you are down $80: you collected $100, and buying it back would cost $180.

You have three choices here, and none of them is free:

You decide to hold. You wanted the shares at $45, after all.

Expiry: XYZ closes at $40

The put is in the money by $5. Over the weekend you are assigned. Monday morning:

• The $4,500 leaves your cash.
• 100 shares of XYZ appear, worth $40 each: $4,000.
• The $100 premium is still yours.

Your cost basis is $44 per share. The shares trade at $40. The position is down $400 the moment you own it.

Notice what the premium did. It turned a $500 share loss into a $400 one. It did not stop the loss. See cash-secured put max loss for the whole table down to zero.

After assignment: the stock keeps falling

The next month XYZ slides to $36. Now the shares are worth $3,600, and you are down $800 on a trade that started with "I'll just collect $100."

This is the part to sit with. On the day you sold the put, $45 felt like a discount. At $36, it doesn't. The strike was never a floor. It was the price you promised to pay.

Your choices now are the same ones any shareholder has:

1. Sell the shares and take the $800 loss.
2. Hold and wait, which is a bet on direction, the thing selling the put was meant to avoid.
3. Sell a covered call above $44 to collect a premium while you wait. At $36, a $44 call pays very little. A $40 call pays more but locks in a loss if called away.

None of these is wrong. What's wrong is reaching this point without having decided in advance. Our page on what happens when a cash-secured put is assigned covers that decision.

The whole trade in one table

The max gain was $100. The loss reached $800 and could have gone further. That ratio is the honest shape of a cash-secured put.

What would have changed the ending

• Checking the earnings date. If the week-3 drop was earnings, the trade had a known gap risk from day one.
• A written exit. "If XYZ closes below $42 before expiry, I buy to close" would have ended it at about −$250 instead of −$800. (At $42 the put is worth at least its $3 of real value, plus a little time value.)
• Sizing by the strike, not the premium. $4,500 of XYZ should be a position you'd hold through a 20% drop. If it isn't, the put was too big.
• Wanting the shares for real. If $45 was a price you'd have paid on its own, the $36 month is a bad month in a stock you own, not a disaster. If you only wanted the $100, it's a trap.

Questions