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Selling puts or selling calls: which should you do first?
Start with whatever you already have. If you hold cash and want to buy a stock lower, sell a cash-secured put. If you already own 100 shares, sell a covered call. At the same strike, the two make almost the same bet.
The short answer
Your starting point decides it. Cash in the account points to a Cash-secured put. 100 shares already in the account point to a Covered call.
Both sit inside the wheel strategy. The put is the usual way in: you get paid while you wait to buy. The covered call is the way out: you get paid while you wait to sell. Where you start just depends on whether you're holding cash or shares today.
And here's the part most people miss. A cash-secured put and a covered call at the same strike and expiry carry nearly the same risk.
What each one needs
| Selling a cash-secured put | Selling a covered call | |
|---|---|---|
| You need | Strike × 100 in cash | 100 shares |
| You're promising to | Buy 100 shares at the strike | Sell 100 shares at the strike |
| You collect | A premium, now | A premium, now |
| You want the stock to | Stay above the strike | Stay below the strike, or rise to it |
| Big risk | The stock falls a lot; you buy anyway | The stock falls a lot; you still own it |
| Dividends | None while you wait | Yours while you hold the shares |
| Approval level | Often one step higher | Often the lowest options level |
Why they're nearly the same bet (an illustration, not a trade idea)
This surprises people, so here it is in numbers.
A made-up stock, XYZ, trades at $50.
Route A, the put: keep $5,000 in cash. Sell a 30-day $50 put for $2.00. Collect $200.
Route B, the call: buy 100 shares for $5,000. Sell a 30-day $50 call for $2.00. Collect $200.
At the money, the put and the call often pay about the same. Now every outcome at expiry:
| XYZ at expiry | Route A: sold the $50 put | Route B: shares + sold the $50 call |
|---|---|---|
| $30 | Assigned at $50: −$2,000 + $200 = −$1,800 | Shares −$2,000 + $200 = −$1,800 |
| $40 | Assigned: −$1,000 + $200 = −$800 | −$1,000 + $200 = −$800 |
| $48 | Assigned: −$200 + $200 = $0 | −$200 + $200 = $0 |
| $50 | +$200 | +$200 |
| $60 | Put expires: +$200 | Called away at $50: +$200 |
| $70 | Put expires: +$200 | Called away at $50: +$200 |
Same row, same result. Both routes keep the premium and give up the rise. Both take the full fall below $50, and both lose money below $48.
Where they end up differs. After a fall, Route A owns shares it just bought. Route B owns shares it already had. After a rise, Route A holds cash. Route B also holds cash, because the shares were called away.
In plain words: a put and a covered call at one strike are two doors into the same room.
The small differences that do matter
Even with the same picture, a few things separate them:
- Dividends. Route B owns shares, so it collects any dividend paid during the month. Route A doesn't. The market tends to price that into the premiums, but it matters for your cash.
- Commissions and spreads. Route B buys shares and sells a call: two trades. Route A is one. On small positions, that adds up.
- Approval. Many brokers let you sell covered calls at the first options level. Cash-secured puts can need the next level. See options approval levels explained.
- Taxes. Owning shares can start a holding period that a put doesn't. This is general information, not tax advice; check with a tax professional or your broker.
- Feel. Some people find it easier to sell a put at a price they'd love to pay. Others find it easier to sell a call on shares they already own.
Which first, by situation
| Your situation | Usually start with |
|---|---|
| Cash only, and a stock you'd like to own lower | Sell a put |
| 100 shares of a stock you'd be fine selling higher | Sell a covered call |
| 100 shares you never want to sell | Neither, or a call so far out it rarely gets hit |
| Cash, but your broker hasn't approved puts yet | Buy 100 shares, then sell a call (a buy-write) |
| Not sure you'd want to own the stock at all | Neither. Pick a different stock |
That last row is the one to take seriously. Both routes end with you owning the stock after a fall. If you wouldn't want it, no premium makes up for that.
Our beginner page should I start with covered calls or puts covers this from the very first trade.
How they link up
You don't stay on one side for long. In the wheel:
- Sell a put. If it expires, sell another.
- If you're assigned, you own the shares. Now sell a covered call.
- If the call expires, sell another. If the shares are called away, you hold cash again. Back to step 1.
The two halves aren't rival strategies. They're the same loop, entered from different doors.
In Canada, covered calls are widely allowed in a TFSA or RRSP. Cash-secured puts depend on the broker, and options permissions differ by broker, so check yours before you plan to start with puts.
Questions
Is selling a put the same as selling a covered call?
At the same strike and expiry, the profit and loss at expiry is nearly the same. Both keep the premium, give up the rise, and take the fall. They differ in what you hold (cash or shares), dividends, fees and approval levels.
Should beginners sell puts or calls first?
Start with what you have. If you own 100 shares you'd sell at a higher price, a covered call is the simplest first trade. If you hold cash and want to buy lower, a cash-secured put fits.
Which is riskier, selling puts or selling calls?
Cash-secured puts and covered calls carry about the same risk: a big fall in the stock. Selling calls you don't own shares for, a naked call, is far riskier and isn't part of the wheel.
Do I need a margin account to sell puts?
Not for cash-secured puts at most brokers. You need the full cash set aside and the right options approval level.
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