What is a Cash-Secured Put? (Getting Paid to Buy Stocks)
The cash-secured put is a value investor's secret weapon: set your target price, and get paid while you wait for it.
Quick Summary
A Cash-Secured Put is when you sell a put option on a stock you want to own, while keeping enough cash in your account to buy the shares if assigned. You collect premium immediately in exchange for agreeing to potentially buy shares at the strike price.
Every investor knows the feeling: You want to buy a stock, but it feels too expensive right now. You tell yourself, "I'll wait until it drops to $100, then I'll buy it."
Usually, you place a Limit Order and wait. And wait. If the stock never drops, you get nothing. If it does drop, you get the stock.
The Traditional Waiting Game
Setting a Limit Order and hoping the stock drops
Current Price
$60
Your Target
$55
Compensation
$0
If the stock never drops, you earn nothing for your patience.
But what if you could get paid while you wait? This is the power of the Cash-Secured Put—a strategy that pays you upfront just for being willing to buy a stock at your chosen discount price.
The Definition: What is a Cash-Secured Put?
THE STRATEGY
Sell a Put Option + Hold Cash as Collateral = Collect Premium
"Put"
You're selling someone the right to sell their shares to you at the strike price. If they exercise, you must buy.
"Cash-Secured"
You aren't bluffing. You have the full cash amount ready in your account to buy the shares if assigned.
How It Works: Limit Order vs. Cash-Secured Put
Think of a Cash-Secured Put as a Limit Order that pays a dividend while you wait.
Let's say Coca-Cola (KO) is trading at $60. You like the company, but you only want to buy it if it goes on sale for $55.
Two Ways to Wait for Your Price
- Set a limit order at $55
- If KO stays at $60, you buy nothing
- You make $0 while waiting
- If KO drops to $55, you buy shares
- Sell a $55 Put expiring in 30 days
- Collect $1.00 premium ($100) instantly
- You get paid to wait
- Keep $5,500 cash as collateral
A Real-World Example
Current Stock Price
$60
Strike Price
$55
Premium Received
$1.00 × 100 = $100
Cash Collateral Required
$55 × 100 = $5,500
The Two Possible Outcomes
At expiration: KO is trading at $58
The option is Out of the Money—it expires worthless. You keep the $100 premium AND your $5,500 cash. You can now sell another put next month and repeat!
Return on Collateral (Scenario A)
At expiration: KO drops to $50
You are assigned—you must buy 100 shares at $55 (even though they're now worth $50). But remember: you collected $1.00 premium, so your actual cost basis is only $54 per share.
Your Effective Cost Basis
$55 Strike − $1 Premium = $54 per share
Why Use This Strategy?
The Cash-Secured Put is the ultimate tool for value investors.
Three Key Benefits
Better Entry Prices
Lower your cost basis. If you're willing to pay $55, why not effectively pay $54?
Income Generation
If the stock never drops, at least you collected premium income along the way.
Discipline
Forces you to pick your price in advance and stick to it. No emotional FOMO buying.
The Risk: "Catching a Falling Knife"
There is no free lunch. The risk of a Cash-Secured Put is exactly the same as buying the stock outright—the price could crash.
What if the stock doesn't just dip—it collapses?
Example: You sell a $55 Put on Coca-Cola. Suddenly, the company announces terrible news. The stock crashes to $30.
The outcome: You are still obligated to buy at $55. You immediately hold shares worth only $30—a $25 per share loss (minus the $1 premium cushion).
However, if you had planned to buy at $55 anyway via a Limit Order, you would have suffered the exact same loss. The premium provides a small buffer, but cannot protect against major declines.
Frequently Asked Questions
Summary
The Cash-Secured Put changes your mindset from "chasing stocks" to "letting stocks come to you."
- If the stock doesn't reach your price → You keep the premium and try again
- If the stock does reach your price → You own the shares at an effective discount
The Cash-Secured Put Trade-Off: Get paid to wait for your target price. If assigned, you buy the stock you wanted anyway—just at a slightly lower effective cost.
Important: Only sell cash-secured puts on stocks you genuinely want to own for the long term. This is not a strategy for speculating on stocks you don't believe in—you may end up owning them!
