Cash-secured puts

The steps below are the order the trade is actually placed in, and the order matters: what has to be in the account before an option can be sold is what makes the obligation coverable. None of the steps mentions a price, because there is no options-chain feed behind this site — nothing on this page is a quote, and no premium named anywhere here is one that exists in the market today.

1. Choose a stock or ETF and a strike price at which you would be prepared to own 100 shares of it.
2. Set aside strike x 100 in cash per contract. That collateral is what makes the put cash-secured rather than naked.
3. Sell one put contract. The premium is credited immediately and is yours regardless of what follows.
4. If the stock is above the strike at expiration the put expires worthless, the collateral is released, and you own nothing.
5. If the stock is below the strike you are assigned: you buy 100 shares at the strike, using the collateral, whatever the market price then is.
6. Positions can be closed early by buying the put back, or rolled to a later expiration — both at whatever the option then costs.

Every line below is a rule of how the contract works, not a forecast and not a price. None of it moves when the market moves.

What pays you

The put premium, plus whatever interest the set-aside cash earns in the sweep or money-market position your broker allows for collateral. In a high-rate environment that interest is a large part of the total, and it is the only genuinely interest-like part.

Best case

The premium received. A cash-secured put never participates in the stock's upside — if the shares double, you still receive only the premium.

Worst case

Strike minus premium, times 100, per contract: the loss if you are assigned and the shares then go to zero. The obligation to buy does not soften as the price falls.

Breakeven

Strike price minus the premium received per share.

Capital required

Cash equal to strike x 100 per contract, held aside until the option expires or is closed. Basic option approval; no borrowing.

Broker approval

Usually the lowest or second option approval level.

Assignment

American-style: you can be assigned at any time while the put is in the money, and assignment becomes likely once little time value is left. On assignment you buy 100 shares at the strike no matter where the market is trading, and the position becomes an ordinary long stock holding with an ordinary stock's risk.

Why tax gets its own box here rather than a line at the end. Premium is not taxed the way a dividend is, the treatment can change depending on whether the contract expires, is bought back or is assigned, and being assigned turns an option trade into a share sale or a share purchase with its own consequences. The note below is the general US structure, not advice, and not a substitute for asking someone about your own return.

This is the half of the trade that arrives later. The premium is collected once, at the start, and it is the whole of what this position can pay. The obligation behind it runs for the entire life of the contract, and the list below is what that obligation costs when the market moves through it rather than around it.

Full explainer in the Learn library: Cash-secured puts. Run your own numbers with the covered-call yield calculator.