You have a waiting list of stocks you'd like to own, if only their price dropped a little. A Cash-Secured Put turns that list into a source of income. Instead of placing a limit buy order and waiting for nothing, you sell a Put at your target price, and you get paid while you wait.
Example: cash-secured Put on MSFT| MSFT price | $415.00 |
| Sell a 400 Put (35 days) | Collect $3.20 = $320 |
| Cash required as collateral | $40,000 (400 × 100) |
| Approximate annual return | ~9.6% a year |
| Your effective cost if assigned | 400 − 3.20 = $396.80 |
* This is a hypothetical illustration and does not reflect actual results. Results vary with market conditions and execution timing.
The two possible outcomes
MSFT above 400 at expiration (most likely)
The Put expires worthless. You keep the full $320 and your cash is freed. Then you repeat. This happens in 70-80% of cases when selling strikes with a delta of 0.20-0.30.
Assignment: MSFT falls below 400
You buy 100 shares at $400. Your effective cost is $396.80, a 4.4% discount to the price when you sold.
| Measure | Value |
|---|---|
| Max profit | $320 (reserved from day one) |
| Breakeven | $396.80 |
| Max loss | $39,680 in theory (if the stock went to zero) |
* This is a hypothetical illustration and does not reflect actual results. Results vary with market conditions and execution timing.
When to use a Cash-Secured Put
- You have a stock you want at a lower price than today's.
- Your outlook is neutral or bullish.
- IV rank is high (above 30%) · fatter Premium.
- The stock sits at clear technical support levels.
