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CASH SECURED PUT

Core Concept: Selling put options while holding cash to buy stock if assigned, generating income or acquiring shares at discount.

Why It Matters

Cash-secured puts let you get paid to wait for better entry prices. Same risk as owning stock but with income cushion.

When to Use

✅ Use cash-secured puts when:

• Want to buy stock but think it's too expensive
• Willing to own at strike price
• IV rank >50% (high premium)
• Have cash set aside for assignment

❌ Avoid when:

• Don't actually want the stock
• Can't afford assignment ($10k-50k per contract)
• Stock in downtrend (catching falling knife)
• IV too low (premium not worth risk)

Strategy Mechanics

Setup: Sell put at desired buy price, keep cash for assignment
Max profit: Premium collected (if stock stays above strike)
Max loss: Strike - premium (if stock goes to $0)
Breakeven: Strike - premium

Cash required: Strike × 100 shares (e.g., $100 strike = $10,000)

Trade-offs

Pros: Get paid to wait, lower effective buy price, defined risk
Cons: Ties up capital, miss bigger opportunities, unlimited downside (to $0)

Cash-secured puts are the flip side of covered_call and demonstrate selling premium via options_greeks theta.

Quick Reference

Position Greeks:

• Delta: +0.30 to +0.50 (positive = bullish exposure)
• Gamma: Negative (risk increases if stock drops)
• Theta: Positive (earn ~$10-30/day)
• Vega: Negative (profit from IV decrease)

Strike selection:

Strike vs Stock	Premium	Use Case
ATM	Highest	Neutral, likely assignment
5% OTM	Medium	Target buy price
10% OTM	Lower	Conservative, unlikely assignment

Assignment management:

• If assigned: Now own stock, can sell covered calls
• Before expiration: Roll down/out for credit
• Avoid assignment: Buy back put before expiration

Wheel strategy: Alternate between cash-secured puts and covered_call for continuous income.

Examples

EXAMPLE

Successful cash-secured put:

Stock: $105
Sell: 100 Put, 45 DTE, collect $2.50 premium
Cash reserved: $10,000

Scenario 1: Stock stays above $100 at expiration

• Keep $250 premium (2.5% return in 45 days)
• Repeat next month (potential 20%+ annual)

Scenario 2: Stock drops to $95, assigned

• Buy 100 shares at $100
• Effective cost: $97.50 ($100 - $2.50 premium)
• Stock now at $95 = $2.50 paper loss vs $5 if bought at $100
• Premium cushioned downside by 50%

Scenario 3: Stock drops to $85

• Forced to buy at $100
• Effective cost: $97.50
• Current loss: $12.50/share ($1,250)
• But sell covered calls to reduce basis further

Rolling to avoid assignment:

Sold: 100 Put, 7 DTE, stock at $96 (ITM, likely assigned)

Don't want assignment yet:

• Buy back 100 Put for $4.50
• Sell 95 Put, 45 DTE for $3.50
• Net debit: $1.00 ($100)
• Result: Lower strike, more time, delay decision

Comparison: Buy stock vs Sell put:

Stock at $100, want to buy at $95:

Option A: Place limit order at $95

• Wait indefinitely
• No income while waiting
• May never fill

Option B: Sell 95 Put for $2.00

• Collect $200 immediately
• If drops to $95: Buy at effective $93
• If stays above $95: Keep premium, try again

Option B generates income while waiting.

Wheel strategy complete cycle:

Starting capital: $10,000

Step 1: Sell 100 Put for $2.00 (45 DTE)

• Collect $200, stock stays above 100
• New capital: $10,200

Step 2: Sell 100 Put for $2.50

• Assigned at $100, effective $97.50
• Own 100 shares

Step 3: Sell 105 Covered Call for $2.00

• Stock called away at $105
• Profit: $5 stock + $2 call + $2.50 put = $9.50 total

Step 4: Back to cash, repeat

• Capital now: $10,950 (9.5% return over 3 months)

Tax efficiency:

Sell: 100 Put for $2.50 premium (short-term income)

If expires worthless:

• $250 taxed as short-term capital gains (high rate)

If assigned:

• Premium reduces cost basis ($100 - $2.50 = $97.50)
• Capital gain taxed when eventually sell shares
• Can defer taxes by holding shares

Assignment can be more tax-efficient than expiring worthless. ```

References

• Options Playbook: Cash-Secured Put
• "Selling Puts for Income" - tastytrade guide