Selling cash-secured puts (CSPs) is one of the most straightforward strategies for generating income or acquiring shares at a discount. Whether you're a beginner learning options or an income-focused investor looking for conservative tactics, CSPs can be a powerful addition to your portfolio.
This guide breaks down how CSPs work, how to sell them step-by-step, how to manage them when things go wrong, and what to do if you're assigned shares you no longer want.
What Is a Cash-Secured Put?
A cash-secured put is an options strategy where you sell a put option while setting aside enough cash to purchase the underlying stock at the strike price.
- You receive a premium upfront.
- You commit to buying 100 shares per contract if the stock closes below the strike price at expiration.
- The “cash-secured” part means you have enough capital reserved to fulfil that obligation.
Choosing the Right Stock and Strike Price
If the thought of being assigned 100 shares makes you break into a cold sweat, you’re probably approaching cash secured puts all wrong.
Think of selling CSP like agreeing to buy a house, you wouldn’t sign the papers unless you genuinely like the property. The same goes for stocks. If you’re simply chasing premiums and hoping to dodge assignments, cash secured puts are not exactly the best strategy for you.
The right mindset is to only sell puts on companies you will want to own. Businesses with solid fundamentals, earnings and long term potential. Choosing a strike at a price you are willing to buy it at, and it’s like setting a price alarm on your dream stock, only you’re also paid to wait.
Selling cash‑secured step‑by‑step guide
Below is a step‑by‑step to selling cash secured puts.
Ensure eligibility – You need options‑trading approval and enough settled cash to cover the strike price × 100 shares minus premium. A cash account is usually sufficient; Brokers will reserve the cash automatically.
Locate the underlying stock – Search for the stock ticker you want to write a put on. Open the options chain for your desired expiration date.
Select the put contract – In the options chain, identify a strike price at or below the price where you are willing to buy the stock. Click on the bid of the put option to create a sell order.
Disclaimer: This example is provided for educational purposes only and does not constitute financial advice or a recommendation to trade.
Set order parameters – In the order ticket:
- Choose “Sell” (or “Sell to Open”) as the action.
- Enter the quantity (1 contract = 100 shares).
- Select order type (limit order is typical) and set your limit price (desired premium).
- Confirm the expiration date and strike price.
Submit the order – After verifying details, transmit the order. Once filled, your account will credit the premium and earmark cash to cover a potential assignment
Monitor the position – Watch the underlying stock and option price. If the option stays OTM, it may expire worthless and you keep the premium. If the stock falls below the strike, prepare for assignment (purchase of 100 shares). You may choose to buy back the option (buy‑to‑close) before expiration to lock in profit or limit losses.
Adjust or close – To close the position before expiration, place a buy‑to‑close order for the same contract. To roll, simultaneously close the current contract and sell a new one with a later expiration or different strike.
How to Manage a Cash-Secured Put
If the Stock Goes Down Past the Strike (But You’re Not Assigned Yet)
This is where many traders panic. Your stock is below the strike, but the put hasn’t been assigned yet.
What can you do?
- Hold and wait:
If you still like the stock and don’t mind owning it at the strike, do nothing. You may be assigned at expiration. - Roll down and out:
If the stock drops further and you’re no longer comfortable with the original strike, consider rolling:
- Close the current put (buy to close).
- Sell a new put at a lower strike and/or later expiration.
- You may receive additional credit or reduce downside risk.
Rolling reduces assignment risk but may lock in a small loss or limit further upside.
If the Stock Crashes Hard
Let’s say you sold a put at $100 and the stock plunges to $80. You have three choices:
- Let it get assigned and buy at $100, taking the hit.
- Roll to a lower strike (say $85) and defer assignment.
- Close the position entirely (accept a loss).
Your decision at this stage comes down to revisiting your original thesis.
- Does your original reasoning for the trade still stand?
- Has anything fundamental changed about the company – poor earnings, a major strategic shift or an industry headwind?
Willingness to own
- Would you be buying it today at that level, knowing what you know now?
Consider Opportunity Cost
- Is your capital tied up in a position that’s losing momentum?
- Could that capital be redeployed elsewhere with a better risk/reward right now?
What If You're Assigned but No Longer Want the Stock?
So you’re assigned 100 shares but no longer want to own the stock. Good news, you’re not stuck. You can simply sell the stock immediately.
Once assigned, your shares are available in your account and can be sold
Alternatively, investors can consider temporarily holding on to the stock and sell covered calls to earn some premiums.
Final Thought
Cash-secured puts are deceptively simple and a rare win-win in the options world. If the stock stays above your strike, you collect premium income simply for being willing to buy. If it dips below, you get the shares you wanted, at a discount to the market price, while still keeping the premium. Either outcome moves you toward your goal, whether that’s generating cash flow or building a position in a quality company.
submit your comment