DocsStrategies

Cash-Secured Put

Sell out-of-the-money puts on stocks you'd be happy to own. Collect premium if they don't get assigned, buy at a discount if they do.

9 min readincomesingle legwheel

A cash-secured put (CSP) is selling an out-of-the-money put on a stock you’d be happy to own at the strike price, with the cash to buy 100 shares set aside. If the stock stays above the strike at expiration, you keep the premium. If it doesn’t, you buy the stock at a discount and either hold it or start writing covered calls. Done well, it’s the best income strategy in retail options.

Outlook
Neutral to bullish on the underlying. You want to own it cheaper, or you want to be paid not to.
Legs
1 (short OTM put, 100 × strike held in cash)
Max loss
Strike − premium per share, capped at strike (stock to zero)
Max profit
Premium collected
IV preference
Higher is better — fatter premium for the same delta.
Best regime
Elevated IV on names with strong fundamentals.

The structure

For every cash-secured put you sell, you set aside enough cash to buy 100 shares of the stock at the strike price. That cash is the “secured” part — your broker holds it as collateral against potential assignment. In exchange you collect the option premium up front.

At expiration:

  • Stock above strike: the put expires worthless, you keep all the premium, and your cash is released. Free and clear.
  • Stock below strike:you’re assigned — you buy 100 shares at the strike using the secured cash. Your effective cost basis is strike − premium per share.

Worked example

MSFT is trading at $415. You like the company and would happily own it at $400. The 35 DTE 400 put has delta ~0.25 and $5.50 in premium.

  • Premium collected: $550
  • Cash secured: $40,000
  • Effective buy price if assigned: $400 − $5.50 = $394.50
  • Annualized return on the secured cash: ~14% (550 / 40000 × 365 / 35)
  • POP (delta-implied): ~75%

If MSFT stays above $400, you walk with $550 against $40,000 of cash for 35 days — a respectable return for waiting. If MSFT drops to $390, you buy 100 shares at $400 (effective cost $394.50, $4.50 worse than spot), and you’ve started a position you wanted anyway.

When to use it

  • You actually want to own the stock.This is the only filter that matters. CSPs are not magic income — they’re “own a stock you like, but cheaper.” If you don’t want assignment, you’re trading the wrong strategy.
  • IV ≥ 20%. Below that the premium is a rounding error.
  • 25-45 DTE. The classic monthly cycle. Theta is steepest in this window and the gamma risk is manageable.
  • Delta 0.20-0.30. The Tradient default. Roughly 70-80% probability of staying above the strike, with enough premium to be worth the trade. Lower deltas trade assignment risk for income; higher deltas do the opposite.

How Tradient ranks them

The CSP scanner module is NakedPutStrategy in backend/app/strategies/income.py. It walks every OTM put in your DTE window across your watchlist, filters by IV, delta band, volume, and minimum annualized return, then prices the trade. Default sort is annualized return, then the Tradient Score reranks by composite quality.

Capital sizing for CSPs uses strike × 100as the per-contract collateral. A $400 strike CSP requires $40,000 in cash secured per contract. If your total capital is $50,000 with a 25% per-trade cap, that single contract eats your entire per-trade allowance — Tradient surfaces this in the sizing column so you can’t accidentally over-commit.

The wheel

CSPs are step 1 of the wheel. The full sequence is in Covered Call, but in short: sell CSPs until assigned, then sell covered calls against the resulting stock until called away, then start over. The wheel is mechanical and emotionally easy to follow, which is most of the reason it works.

The wheel only works if you actually want the stock
The dangerous failure mode of CSP-trading is selling puts on stocks you don’t actually want, getting assigned in a downtrend, panic-selling at a worse price, then doing it again on another name. The discipline isn’t in the strategy, it’s in the ticker selection.

Managing the trade

Take profits at 50%

Same rule as iron condors: when you’ve captured 50% of max profit (i.e. you can buy the put back for half what you sold it for), close the trade and free up the collateral. The last 50% takes longer than the first 50% and exposes you to more gamma risk for less reward.

Rolling down and out

If the stock falls and the put is now ITM, you can buy it back and sell a longer-dated, lower-strike put for net credit. This buys time for the stock to recover and gives you a better effective entry price if eventually assigned. Only roll for net credit; rolling for a debit is just chasing.

Accept assignment

The whole point is that you’re willing to own the stock. If the put goes ITM at expiration, just take the assignment and start the second half of the wheel. Trying to avoid assignment forever turns the strategy into something worse than what you signed up for.

Common mistakes

  • Selling CSPs on names you don’t want. Premium chasing on a stressed ticker is how you end up with a portfolio of trash.
  • Selling too aggressive a delta.0.40 delta means you’re assigned more often than not. Fine if you really want the shares, dangerous if your portfolio can’t absorb the position.
  • Ignoring earnings.Selling a CSP that straddles earnings exposes you to a binary risk you haven’t been paid for. Use the earnings_within_days filter to either include or exclude them deliberately.
  • Not sizing for assignment.A $400 strike assigns $40,000 of stock. Two of those is $80,000. Don’t sell more contracts than you can actually take delivery on.
  • Calling them “naked puts.” Pedantic, but: a naked put is one where the cash isn’t set aside. Tradient’s scanner is named naked_put in the API for historical reasons, but the actual workflow is always cash-secured.

Where to go next