Home › Guides › Options: corporate actions

Short put if the stock goes to zero: the real loss

If the stock goes to zero, a short put loses the strike times 100, minus the premium you collected. A cash-secured put can't lose more than the cash set aside, but that can still be most of an account.

Options guide · 8-minute read · Updated 2026-10-28

The short answer

If the stock goes to zero, you lose (strike − premium) × 100 per contract.

Sell a $40 put for $1.50 and the worst case is ($40 − $1.50) × 100 = $3,850. You must buy 100 shares at $40, they're worth nothing, and the $150 you collected is all you keep.

That's the number to know before you sell any put. Not the premium. The premium is the most you can make. This is the most you can lose.

Why the loss is so much bigger than the premium

A Put option seller makes a promise: "I'll buy 100 shares at the strike if you want to sell them." The buyer pays a premium for that promise.

If the stock falls, the promise doesn't shrink. At expiry, a $40 put on a $0 stock means you pay $4,000 for shares worth $0. That's Assignment: the shares land in your account at the Strike price, whatever they're worth.

So the trade has a lopsided shape. The gain is small and capped. The loss runs nearly all the way to the strike. That's true of every short put, which is why the wheel strategy only works on stocks you'd truly hold.

The worked example (an illustration, not a trade idea)

A made-up stock, XYZ, trades at $45. You sell one put with a $40 strike for $1.50. You collect $150. Because it's a Cash-secured put, your broker sets aside $4,000 ($40 × 100).

Then bad news hits. Here's every outcome at expiry:

Read the bottom row twice. It's the full worst case. A stock can get there through a bankruptcy, a fraud, or a failed drug trial. My guide on options on a bankrupt stock shows how that plays out step by step.

Why "cash-secured" caps it, and margin doesn't

A cash-secured put has one big strength. You can never lose more than the cash set aside. The $4,000 is already parked. If the stock goes to zero, that $4,000 buys the shares, and that's the end of it.

A put sold on margin (a Naked put) has the same worst case per contract. The difference is how many contracts you can sell. A margin account may only ask you to hold a fraction of the strike as collateral. That lets you sell more puts than you could ever pay for.

Here's the same $20,000 account two ways (hypothetical):

Cash-secured puts can still wipe out most of the account if you put it all in one stock. Margin lets the loss go past the account itself. My guide on cash-secured vs naked puts compares the two.

In Canada, TFSAs and RRSPs don't allow margin, so where a broker permits puts in them at all, they must be fully cash-secured. Options permissions differ by broker (Questrade, IBKR, Wealthsimple), so check your broker's help page.

Sizing is the real defence

You can't stop a stock from going to zero. You can choose how much of your account it can take with it.

Here's the same $40 put at three sizes in a $40,000 account (hypothetical):

One put at 10% of the account is a painful year. Ten puts in one stock is the end of the account. The premium was the same $1.50 each time. Only the size changed.

Rules many sellers use:

1. Size by the strike, not the premium. Ask: would I buy $4,000 of this stock today?
2. Cap one stock at a set share of the account. Pick the number before you trade. See position sizing for selling options.
3. Spread across companies in different businesses. One failure then hurts one slice, not all of it.
4. Skip the stocks where zero is realistic. Heavy debt, shrinking sales, late filings or a pending yes-or-no event like a court ruling or a drug approval.

Try your own numbers in the cash-secured put calculator.

What to do if it's already happening

If your stock is falling hard right now, the numbers above tell you the range. Don't wait on the worst row. You have three choices:

• Buy the put back and take a known loss. Check the ask, not the last price.
• Take assignment if you'd honestly hold the shares, and plan your exit on the chart before it happens.
• Roll to a later date only if the new trade is one you'd open fresh today. A roll can delay the loss without shrinking it.

If the company is being delisted, quotes can thin out fast. See options when a stock is delisted. For every company event in one place, see corporate actions and your options.

Questions