Cash Secured Puts Strategy - Selling Options HQ

Strategy Overview

What You Need

Options-enabled trading account
Cash equal to (Strike Price × 100) per contract
Understanding of put options basics

Risk Level

Conservative

Similar risk to buying stocks outright, but with added premium income

Time Commitment

Initial setup: 30 minutes
Monitoring: 15 minutes/week
Trade management: Monthly

How Cash Secured Puts Work

Think of cash secured puts like making an offer on a house below market price. You get paid for making the offer, and if the price drops to your offer, you buy the house.

What You Need:

Cash to buy 100 shares at strike price
Desire to own the stock at a lower price
Options approval level 2 or higher

Real Example: Microsoft (MSFT) at $330

1. Set Aside Cash

Want to buy at $320, need $32,000 in cash secured

2. Sell the Put

Sell 1 put at $320 strike for $5.00 ($500 premium)

3. Possible Outcomes

Stock stays above $320: Keep $500 premium
Stock below $320: Buy shares at $320 (effective cost $315 after premium)

Step-by-Step Implementation

1. Stock Selection

Choose stocks that are:

Companies you want to own long-term
Trading at or near fair value
Have good option liquidity

Pro Tip: Use our scanner to find stocks with good CSP opportunities

2. Strike Price Selection

Consider these factors:

5-15% below current market price
At technical support levels
At prices you're willing to buy

Example: If stock is at $50, consider $45 strike for 10% discount

3. Expiration Selection

Optimal timeframes:

30-45 days for best premium decay
Monthly options for better liquidity
Consider earnings dates

4. Position Management

Monitor and manage by:

Setting profit targets (50-75% of premium)
Rolling puts if needed
Being prepared for assignment

Choosing Expiration: Short vs. Long DTE

How far out you set your expiration (DTE = Days To Expiration) changes the way the trade feels and how much attention it needs. There’s no one-size-fits-all, but here are the tradeoffs:

Longer DTE (30–45 Days)

✅ More premium collected upfront.

✅ Less “noise” from daily stock moves and volatility.

✅ Fewer trades to manage — easier for beginners.

❌ Profit comes slower — premium drips away each day.

Many traders don’t wait until expiration. Instead, they buy back the put when it’s 50%+ in profit and keep the difference.

Example: You sell a put for $4.00 ($400). A few weeks later it’s worth $2.00 ($200). You buy it back, locking $200 profit early and free up your cash for the next trade.

Shorter DTE (7–14 Days)

✅ Faster premium decay (time runs out quicker).

✅ More trades → can stack up small wins.

❌ More sensitive to stock swings and volatility jumps.

❌ Requires more active monitoring and adjustments.

Example: A 7-day put at $1.00 might return $100 in a week. A 45-day put at $4.00 could also earn $200, but takes longer. Shorter trades = quicker turnaround, less profit and requires consistent small wins. Longer trades = slower but steadier, less monitoring, allows for the stock to play out.

When to Choose Which

Use longer DTE (30–45 days) if you want smoother trades, less stress, and are okay with slower profits.
Use shorter DTE (weeklies/biweeklies) if you’re seeking smaller wins, more sensitive to noise/price movements and are comfortable managing trades daily.

Think of it this way: longer DTE = “set and forget”, shorter DTE = “hands on, more active”. Many traders mix both styles depending on market conditions.

Real-World Example

Scenario: AAPL Trading at $170

Trade Setup:

Sell 1 AAPL $160 Put (5.9% below market)
45 days to expiration
Collect $3.50 premium ($350 total)
Set aside $16,000 as collateral

Possible Outcomes:

If AAPL Stays Above $160

Keep $350 premium
2.19% return on capital (45 days)
17.7% annualized return

If AAPL Falls Below $160

Buy 100 shares at $160
Keep $350 premium
Effective cost basis: $156.50

How to Roll Cash Secured Puts

Rolling means closing your current put and opening a new one, usually with a later expiration date or a lower strike price. The goal is simple: collect more net credit, reduce risk, and position yourself better to win the trade.

Always ask yourself: “Do I think the stock will challenge my strike? Am I okay owning shares at this strike price?” If not, it’s a good time to roll.

When to Roll

If the stock is moving close to your strike price
If you want more time for the trade to work
If you want to move to a safer strike you’re more comfortable with

Only roll into strikes where you’d truly be okay buying 100 shares.

Main Objective

Every roll should bring in net credit (more premium collected). This lowers your break-even and reduces risk. Think of it like getting paid to buy the stock cheaper and cheaper.

Example: Rolling Down and Out

Step 1: Initial Trade

You sell a $8 strike put. That means $800 set aside to buy shares if assigned.

Step 2: First Roll

Stock drops, so you roll down and out to the $7.5 strike. You collect a $10 credit and lower your strike by $0.50 ($50 safer). Adjusted Cost Basis: $740 ($7.40/share).

Step 3: Second Roll

Stock still weak, so you roll again down to the $7 strike. You collect another $10 and lower risk by another $0.50 ($50 safer). Adjusted Cost Basis: $690 ($6.90/share).

Key Takeaways

Roll when your strike is at risk and you want more time.
Always collect net credit — this is what lowers your cost.
Each roll reduces your break-even (Adjusted Cost Basis).
Pick strikes where you’re comfortable owning shares.

Successful rolling = lower strike, more credit, less risk. Over time, this gives you better odds of winning the trade.

Recap & Practical Checklist

Quick Recap

You sell a put and set aside cash as if you’re “making an offer” on shares.
If the stock stays above your strike → you keep the premium as income.
If the stock drops below strike → you buy 100 shares at that strike, but cheaper thanks to the premium.
Rolling puts = adjusting for more time or better prices while collecting more premium.

Cash Secured Put Checklist

✅ Do I truly want to own 100 shares of this stock?

✅ Do I have enough cash set aside for assignment (Strike × 100)?

✅ Is my strike price one I’d be happy to buy at?

✅ If it approaches my strike, what should I do? Always have a plan and think ahead if xyz were to happen

Common Mistakes to Avoid

❌ Selling puts on stocks you don’t want to own.

❌ Using all your cash on one trade (no room to roll or diversify).

❌ Ignoring earnings dates (stock can gap big against you).

❌ Always ask yourself are you comfortable buying shares at X strike if it comes down to assignment

Next Steps

Start small: 1 contract on a stock you’d happily own long-term.
Track premiums and adjusted cost basis in a simple spreadsheet.
Practice rolling when trades get close to strike.
Later, combine CSPs with covered calls to run the full Wheel Strategy.

Cash secured puts are not about guessing direction — they’re about getting paid to wait for stocks you already want. Stick to the checklist, avoid the common traps, and you’ll build steady returns with less stress.