🗓️ 02112025 2345
📎

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 StockPremiumUse Case
ATMHighestNeutral, likely assignment
5% OTMMediumTarget buy price
10% OTMLowerConservative, 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​