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Should I start with covered calls or cash-secured puts?
Start with what you already have. If you own 100 shares of a stock, a covered call is the natural first trade. If you have cash and want to buy a stock, a cash-secured put is.
The short answer
- Own 100 shares already? Start with a Covered call. You don't need new money, and you'll learn how options behave on shares you know.
- Have cash and a stock you'd like to own? Start with a cash-secured put. You'll be paid to wait for your price.
Either way, you're learning half of the wheel strategy. The other half follows if you're assigned.
The surprise: the risk is nearly the same
Many beginners think puts are riskier than covered calls. At the same strike, they have almost the same outcome shape.
Look at a made-up stock, XYZ, at $50 (an illustration, not a trade idea).
- Covered call: you own 100 shares at $50 and sell a 30-day $50 call for $2.00.
- Cash-secured put: you hold $5,000 and sell a 30-day $50 put for $2.00.
| XYZ at expiry | Covered call result | Cash-secured put result |
|---|---|---|
| $30 | −$2,000 + $200 = −$1,800 | Assigned at $50: −$2,000 + $200 = −$1,800 |
| $45 | −$500 + $200 = −$300 | Assigned: −$500 + $200 = −$300 |
| $50 | +$200 | +$200 |
| $55 | Called away at $50: +$200 | Put expires: +$200 |
| $70 | Called away at $50: +$200 | Put expires: +$200 |
Math examples, not promises. Real premiums for the call and put at one strike differ a little, but the shape holds.
Both cap the gain at the premium. Both lose almost the full drop if the stock falls. The real difference is where you start: holding shares, or holding cash.
So what's actually different?
| Covered call | Cash-secured put | |
|---|---|---|
| What you need | 100 shares | Strike × 100 in cash |
| If assigned | Your shares are sold | You buy 100 shares |
| Typical approval level | Usually the lowest | Often low, but varies by broker |
| Best when | You'd sell at the strike | You'd buy at the strike |
| Feels like | Selling your upside | Being paid to wait |
How to choose
Ask yourself three questions:
- What do I already hold? Shares point to calls. Cash points to puts.
- Which promise am I happy to keep? Selling at the strike, or buying at it?
- What does my broker allow? Covered calls are usually allowed at the lowest options level. Puts can need a step up.
If you'd hate to lose your shares, don't start with a covered call on them. If you'd hate to own the stock at the strike, don't sell the put.
Account note: in Canada, covered calls are widely allowed in a TFSA or RRSP, while cash-secured puts depend on the broker. US retirement accounts have their own limits too. Options permissions differ by broker everywhere, so check yours.
Your first trade, either way
- Pick one stock you understand and would hold through a drop.
- Make sure strike × 100 fits your account. One contract is enough.
- Check the earnings date. If it's inside your expiry, pick a different date.
- Paper trade it first, then write down what happened and why.
Questions
Are covered calls less risky than cash-secured puts?
Not really. At the same strike, the outcomes are almost the same. Both carry most of the stock's downside. The difference is what you start with and what you might end up with.
Can I do both at once?
Yes, on different stocks, or on the same one if you have both the shares and the cash. Many people learn one first so they understand it before adding the other.
Which one needs less money?
If you already own 100 shares, a covered call needs no new money. A cash-secured put needs the strike times 100 set aside.
Which is better for the wheel?
The wheel uses both. Most people start with the put, since it begins with cash. If you already own shares, you can start at the covered-call step.
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