Cash-Secured Put

A strategy where an investor sells a put option while holding enough cash to buy the shares if assigned — earning premium income while waiting to acquire a stock at a target price.

A cash-secured put is a disciplined way to acquire a stock you already want at a price you've already decided is acceptable. You sell a put option at your target strike price, collect the premium up front, and set aside cash equal to the strike price times 100 shares. If the stock stays above the strike at expiration, you keep the premium and repeat. If the stock falls below the strike, you're assigned — you buy the shares at the strike price, but your effective cost is the strike minus the premium you already collected.

The strategy turns patience into income. Instead of placing a limit order to buy at $75 and waiting with idle cash, you sell a $75 put for $2 and collect $200 while waiting. If the stock never reaches $75, you earned $200 doing nothing — and you can sell the next month's put for more income. If the stock does fall to $75, you acquire shares you already wanted at an effective cost of $73.

The risk is genuine: if the stock falls to $50, you're assigned at an effective cost of $73 and sitting on a significant unrealized loss. This is not a hedged position — it behaves economically like owning the stock below the strike. The strategy works best when you've already decided you want to own the stock, not as a way to collect premium on a stock you'd rather not hold.

This definition is for informational and educational purposes only. Nothing on Finance Compass constitutes financial, investment, or trading advice. Always conduct your own research and consult a qualified professional before making financial decisions.