Cash-secured puts
Being paid to promise you will buy shares at a lower price. Sensible if you genuinely wanted them; expensive if you did not.
You set aside the cash to buy 100 shares at a price below the current one, and sell someone a put at that price. You collect a premium for the promise.
If the share stays above the strike, the put expires and you keep the premium. If it falls below, you buy the shares at the strike — which is above the market price by then.
The framing you will hear
It is usually described as getting paid to place a limit order. You wanted to buy at $90 anyway, so why not be paid $3 for agreeing to it?
It is accurate when you genuinely want the shares at that price and have the cash set aside. It quietly omits that you buy at $90 in exactly the scenario where the price is $70, and that the reason it reached $70 may be information you would have wanted before committing.
The outcomes
| Share at expiry | What happens | Your result |
|---|---|---|
| $110 | Expires worthless | Keep $3, buy nothing |
| $95 | Expires worthless | Keep $3, buy nothing |
| $88 | Assigned | Buy at $90, effective cost $87 |
| $60 | Assigned | Buy at $90 a share now worth $60 |
The shape of the risk
The best case is always exactly the premium collected. The worst case is owning shares bought at the strike after the price has fallen towards zero. It is the same lopsided shape as writing any option — small capped gain, large capped-but-substantial loss.
Cash-secured means what it says
The strategy is only what it claims to be if the money is actually there and untouched. Writing puts on margin, without setting the cash aside, is a different and far riskier position wearing the same name.
When it is reasonable
- You want to own the shares and are content at the strike price.
- The cash is genuinely set aside and you can meet the obligation.
- You would not be distressed to own the shares in a falling market — which is the only market in which you will be assigned.