Income Strategy

Cash-Secured PutStrategy

Generate regular premium income by selling put options with sufficient cash coverage.

What is a Cash-Secured Put?

A Cash-Secured Put is an options strategy where you sell a put option while keeping enough cash in your account to purchase the underlying shares if the option is exercised. This strategy is particularly suitable for investors who want to buy a stock at a lower price or generate regular premium income.

How Does It Work?

1

Select Stock

Choose a stock you would like to own at a lower price.

2

Sell Put

Sell a put option with a strike price at which you would buy the stock.

3

Collect Premium

You immediately receive the option premium credited to your account.

4

Reserve Cash

Keep enough cash ready (Strike × 100) to potentially buy the shares.

Practical Example

You want to buy Apple shares, but not at the current price of $180. You sell a put with a $170 strike.

Current Stock Price
$180
Strike Price
$170
Premium Received
$3 per share ($300 total)
Cash Required
$17,000 ($170 × 100)
Break-Even
$167 ($170 - $3 premium)

Possible Scenarios at Expiration

Stock stays above strike (e.g., $175)

Put expires worthless

You keep the $300 premium as profit

Stock falls below strike (e.g., $165)

Put is exercised

You buy 100 shares at $170, effective price: $167

Stock exactly at strike ($170)

Uncertain

Put may be exercised or expire

Advantages

  • Regular premium income
  • Buy stocks below market value
  • Defined risk
  • Works in sideways markets
  • Easy to understand and implement
  • Lower risk than direct stock purchase

Disadvantages & Risks

  • Capital is tied up (opportunity cost)
  • Loss risk in sharp price decline
  • Limited profit potential (premium only)
  • Obligation to buy shares if exercised
  • Consider margin requirements

Best Practices

1

Choose stocks you want to own

Only sell puts on stocks you would hold long-term.

2

Select strike price carefully

Choose a strike at which you would be happy to buy the stock.

3

Consider expiration

30-45 days often offers the best premium-to-risk ratio.

4

Check implied volatility

Higher IV = higher premiums, but also higher risk.

5

Avoid earnings

Don't sell puts right before quarterly reports.

Cash-Secured Put vs. Covered Call

AspectCash-Secured PutCovered Call
PositionShort Put + CashLong Stock + Short Call
GoalBuy stocks cheaplyAdditional income on stocks
Max ProfitPremium receivedPremium + gains up to strike
Max RiskStrike - Premium (if stock goes to 0)Stock price - Premium
Capital RequiredStrike × 100 in cashShares in portfolio

The Wheel Strategy

The Wheel Strategy combines Cash-Secured Puts with Covered Calls in a cycle:

1.Sell Cash-Secured Puts and collect premiums
2.If assigned: You receive the shares
3.Now sell Covered Calls on the shares
4.If called away: Shares are sold
5.Repeat from step 1

Ready for Cash-Secured Puts?

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