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Out-of-the-money cash-secured puts: why most sellers start here

An out-of-the-money put has a strike below today's price. You collect less than at the money, but the stock has room to fall before you buy it. That trade-off is why it's the usual starting point.

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

The short answer

An out-of-the-money (OTM) cash-secured put has a Strike price below where the stock trades today. If the stock stays above that strike, the put expires and you keep the premium. If it falls below, you buy 100 shares at the strike.

Most sellers start here because the stock has room to drop before anything happens. The cost of that room is a smaller premium. You can't have both a big premium and a big cushion on the same day.

If the basic trade is new, read cash-secured put explained first. This page is about where to put the strike.

Cushion vs premium, side by side

The cushion is how far the stock can fall before you start losing money. It's today's price minus your break-even. Your break-even is the strike minus the premium.

Here is one made-up chain for a stock called XYZ at $50, with puts about 30 days out (an illustration, not a trade idea):

Read down the table. Each step lower gives the stock more room. Each step lower also pays you less. That's the whole decision.

The delta dial

Delta is a number on the Options chain. For a put, it reads like a minus sign plus a number between 0 and 1. Sellers often treat it as a rough guide to the odds the put ends in the money.

So a 0.20-delta put is priced as if there's roughly a 1-in-5 chance the stock finishes below the strike. A 0.10-delta put is priced closer to 1-in-10. It's the market's guess from today's prices, not a forecast. Our guide to the Greeks explains where it comes from.

Think of delta as a dial:

• Turn it up (0.30 to 0.40): more premium, less cushion, more chance of buying the shares.
• Middle (about 0.20 to 0.30): a common starting range for sellers who want the shares but not today.
• Turn it down (0.10 or less): a big cushion, a tiny premium, and the shares rarely arrive.

Pick the setting from what you want, not from the premium. If you'd love to own XYZ at $48, a 0.35 delta is fine. If you'd only buy it on a real dip, go lower.

Every outcome for the $45 put

Say you sell the $45 put for $0.70 (an illustration, not a trade idea). You collect $70 today. Your broker sets aside $4,500.

The same drop, three strikes. Now say XYZ falls hard, to $40, by expiry. Here's how each strike fares:

The lower strikes lose less on a big drop. But on a quiet month, the $48 put keeps $140 and the $42 put keeps $30. Neither choice is "right." The lower strike is a smaller bet; the higher one is a bigger bet.

How far out of the money is too far?

Two things go wrong at very low deltas.

1. The premium stops covering costs. A $0.10 premium can lose a real share to the bid-ask spread and fees. Check the gap between bid and ask before you sell.
2. You stop getting the stock you wanted. If you sell puts to buy shares, as in the wheel strategy, a strike that never gets hit never starts the next step.

And one thing goes wrong at high deltas: you buy the stock on almost any wobble. That's the at-the-money put, and it's a different trade.

How to pick yours

1. Write down the price you'd truly pay for 100 shares. That's your strike area.
2. Check that the cash, strike × 100, fits your account. Our cash-secured put calculator does the math.
3. Look at the delta and the premium at that strike. Is the premium worth the risk of owning the stock?
4. Check the earnings date. If it falls before expiry, a gap can skip right past your cushion.
5. Decide your exits before you sell. See cash-secured put exit rules.

Questions