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RookiesNeutral to Mildly Bullish
Cash-Secured Put
Overview
You sell a put option and set aside enough cash to buy the stock if assigned. If the stock stays above the strike, you keep the premium. If it falls below, you buy the stock at an effective price of strike minus premium. A way to get paid to wait for a lower entry.
Max Profit
Limited to: Premium received
Max Loss
Strike Price - Premium received (substantial, to $0)
Breakeven
Strike Price - Premium received
Structure
Short 1 Put + Cash reserve equal to strike × 100
Risk Profile
Limited profit (premium). Substantial downside risk if stock drops significantly below strike.
When to Use
When you want to buy a stock at a lower price and are willing to wait. When you want to generate income from cash positions. best in neutral to mildly bullish markets.