What Is a Cash Secured Put?
A Cash Secured Put (CSP) is a strategy where you sell a put option on a stock you'd be happy to own, while keeping enough cash in your account to buy those shares if assigned.
You collect premium upfront. If the stock stays above your strike price at expiration, you keep the premium and move on. If it drops below, you buy the shares at your strike — which is the price you already decided was fair.
How Premium Collection Works
When you sell a put, you receive the premium immediately. That money is yours to keep regardless of outcome.
Example:
- Stock: MSFT trading at $400
- You sell a $380 put expiring in 30 days
- Premium received: $4.00 per share = $400 total (100 shares)
- Cash reserved: $38,000 to cover potential assignment
Your break-even is $380 minus $4 = $376. The stock must fall below $376 before you lose money.
Strike Selection
Strike selection is the most important decision in a CSP:
- At-the-money (ATM) — higher premium, higher chance of assignment
- Out-of-the-money (OTM) — lower premium, larger cushion before assignment
- Rule of thumb — target the 0.20–0.30 delta strike for a balance of income and safety
CSP strike selection diagram
Targeting 30–45 days to expiration (DTE) captures meaningful time decay without holding too long.
Assignment Risk
Assignment happens when the stock closes below your strike at expiration. You are then obligated to buy 100 shares at the strike price.
This is why "cash secured" matters — you must have the full capital available. If assigned, you now own the stock at your target price and can hold, sell covered calls, or exit.
CSP payoff diagram
When to Use a CSP
Cash Secured Puts work best when:
- You're neutral to bullish on the stock
- You want to own the stock anyway at a lower price
- Implied Volatility is elevated — higher IV = higher premium you collect
- The stock has strong technical support near your strike
Avoid CSPs during earnings weeks unless you understand IV crush and have sized appropriately.