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The cash-secured put, explained

You set aside the cash to buy a hundred shares at a price below where they trade now, and you sell someone the right to make you do it. They pay you for that right. If the price never gets there, the payment is all that happens.

Construction
Short 1 put + cash held to cover assignment
Outlook
Neutral to mildly rising
Premium
Collected at entry
Complexity
1 of 3

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What it is

Selling a put creates an obligation: if the holder exercises, you must buy a hundred shares at the strike. Cash-secured means the money to do that is sitting in the account, uninvested and unspent, for the life of the option.

That last part is what separates this from selling a naked put. The obligation is identical; the difference is whether you can meet it without borrowing. A naked put on margin has the same payoff diagram and a completely different failure mode.

The premium is yours immediately. If the shares stay above the strike, the option expires worthless and the premium is the entire outcome. If they fall below, you buy at the strike — at a price you chose — and your effective cost is the strike less the premium you were paid.

How it works

  1. Pick a price you would genuinely buy at

    This is the strike, and the question is not where you expect the price to go — it is where you would be content to own a hundred shares. If there is no such price, the structure has nothing to offer you.

  2. Set the cash aside

    Strike times a hundred. A broker will reserve it automatically when the order is marked cash-secured; the reserved cash is unavailable for anything else until the option expires or is closed.

  3. Sell the put and collect

    The premium settles immediately and is kept in every outcome, including assignment. It is compensation for taking on the obligation, not a refundable deposit.

  4. Wait out the expiry

    Above the strike at expiry, the option expires worthless and the cash is released. Below it, expect assignment: a hundred shares arrive and the reserved cash pays for them.

The payoff

$80$88$95$103$110$095$93
Max profit
$200
Max loss
−$9,300
Break-even
$93
One $95 put sold for $2.00, cash-secured. Profit is capped at the $200 premium; below $93 the position loses, and keeps losing all the way down. This is the position at expiry only. Before expiry the same structure is worth something different, driven by the time remaining and by implied volatility — neither of which a payoff diagram shows.
Want to draw a different combination of strikes and premiums? The options payoff calculator takes any set of legs you enter and plots them. It runs in your browser and nothing you type is transmitted.

Worked example

XYZ is a placeholder, not a real security. Every guide in this section uses it at $100 so the structures can be compared directly.

XYZ trades at $100. You would be content owning it at $95, so you sell one $95 put thirty days out and collect $2.00 per share — $200 — while setting $9,500 aside.

If XYZ finishes above $95, the put expires worthless. You keep the $200, the $9,500 is released, and you own no shares.

If XYZ finishes below $95, you buy a hundred shares at $95, paid for with the reserved cash. Your effective cost is $93 per share — the $95 strike less the $2.00 you were paid.

Break-even is $93. Below that you are underwater on shares you now own. At $80 the position is down $1,300: $1,500 of loss on the shares against the $200 premium.

Both sides of it

What it gives you

  • The premium is collected up front and kept whatever happens
  • Assignment delivers shares at a price you selected in advance
  • The effective purchase price is the strike minus the premium, always below the strike
  • Fully cash-secured, so there is no borrowing and no margin call

What it costs you

  • The cash is committed and idle for the life of the option
  • You are obliged to buy even if the price has fallen far below the strike
  • Upside is limited to the premium — a share price that doubles pays you nothing extra
  • The maximum loss is large: the strike could be met with shares worth nothing

What assignment does

Assignment delivers a hundred shares and consumes the reserved cash. It can happen at any time with American-style options, though early assignment on a put is less common than on a call and usually appears only when the option is deep in the money with little time value left. The shares arrive at the strike no matter how far below it the market has gone.

Frequently asked questions

What does cash-secured actually mean?
That the full cost of assignment — the strike multiplied by a hundred — is sitting in the account and reserved against the position. It is not a feature of the option; it is a description of how you have chosen to back it. The same short put backed by margin instead is a naked put: identical payoff, but a decline can then produce a margin call rather than simply an unwelcome purchase.
What is the maximum I can lose on a cash-secured put?
The strike multiplied by a hundred, less the premium collected. That is the case where the shares are assigned to you and then become worthless. It is a large number and it is worth writing down before opening the position, because the premium received is typically a very small fraction of it.
What happens if the stock never falls to the strike?
The option expires worthless, you keep the premium, and the reserved cash is released. This is the outcome that happens most often, and it is also the outcome in which you do not own the shares — so if the underlying reason for the position was wanting to own them, repeated expiries are the structure not working as intended rather than working perfectly.
Can I close a cash-secured put before expiry?
Yes. You buy back the same option, and the difference between what you sold it for and what you pay to close is the result. If the option has lost most of its value the position can be closed for a fraction of the premium collected, which releases the cash early. Nothing obliges you to hold to expiry.

Related guides

These guides explain how each structure is built and how it behaves. Nothing here is a suggestion to buy or sell anything, no security is named, no figure is quoted from any market, and no structure is presented as better than another — which one suits a situation is not a question this page can answer.

⚠ Important disclaimer

These calculators are provided strictly for educational and informational purposes. They perform arithmetic on figures you enter. Nothing on these pages is financial, investment, trading, legal or tax advice, nor a recommendation to buy, sell or hold any security, derivative, commodity or cryptocurrency.

The creator is not a registered investment adviser, research analyst or broker with the SEC, FINRA, CFTC, NFA, any U.S. state securities regulator, or SEBI (as an Investment Adviser or Research Analyst). Trading involves substantial risk of loss — you can lose some or all of your capital, and with leveraged instruments you can lose more than you deposit.

Contract specifications, lot sizes and margin rates shown here are seeded from published standards, are editable, and may be out of date or wrong for your broker. Exchanges revise lot sizes and margin requirements, and brokers routinely impose more than the regulatory minimum. Verify every figure against your own broker before acting on it. These tools carry no warranty of any kind and may contain errors.

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