The Cash-Secured Put: Your First Real Options Trade

Most people discover options the wrong way.

They buy a call because some stock "has to go up." They watch it expire worthless. Then they either quit options forever or go hunting for the next lottery ticket.

There's a better entry point: selling cash-secured puts.

It's not sexy. Nobody's going to brag about it at a dinner party. But it's how you actually make money in options, consistently, systematically, without needing to predict where stocks are headed next week.

What You're Really Doing

When you sell a cash-secured put, you're making a simple offer to the market:

"I'll buy 100 shares of this stock at this price if you want to sell them to me. Pay me now for agreeing to this."

That's it. You collect premium today. If the stock drops below your strike price by expiration, you buy the shares. If it doesn't, you keep the premium and move on.

The "cash-secured" part means you actually have the money to buy those shares. You're not leveraging or gambling. You're setting aside the capital required to honor your commitment.

Why This Works

The options market has a structural quirk: option buyers lose about 75 to 80% of the time.

Not because they're dumb. Not because markets are rigged. But because predicting direction AND timing AND magnitude is genuinely hard. You have to be right on all three. Miss on any one, and your option expires worthless.

When you sell puts, you're on the other side. You get paid upfront. Time decay works for you instead of against you. And you don't need to be precisely right, you just need to not be catastrophically wrong.

That's a better bet.

The Mechanics

Let's say XYZ trades at $50. You wouldn't mind owning it at $45.

You sell the $45 put expiring in 30 days. The market pays you $1.00 per share, $100 total for the contract.

Now three things can happen:

Scenario 1: XYZ stays above $45. Your put expires worthless (in your favor). You keep the $100. No shares change hands. You can sell another put if you want.

Scenario 2: XYZ drops to $43. You buy 100 shares at $45 as agreed. Your actual cost basis is $44 ($45 strike minus $1 premium collected). You now own shares below current market price.

Scenario 3: XYZ crashes to $35. You buy shares at $45. This hurts. But it would've hurt worse if you'd just bought shares at $50. At least you collected premium and lowered your entry point.

The key insight: you're willing to own the stock anyway. The premium is your payment for patience.

What Makes This Different From Buying Stock

If you were going to buy XYZ at $50, selling the $45 put gives you several advantages:

You get paid $100 to wait. If the stock never drops to your price, you still profited. If it does drop, you're buying at a discount to where you would've bought it today. And you've defined your entry point in advance instead of chasing momentum.

This is especially powerful during volatility spikes. When markets panic and implied volatility explodes, put premiums get fat. You can sell puts at strikes 10-15% below current prices and collect premiums that would take months to earn during calm periods.

The Real Risk

The risk isn't complicated: you might buy a stock that keeps falling.

If you sell the $45 put and XYZ drops to $30, you're sitting on a $1,500 loss (minus the $100 premium). That's the same risk you'd have owning any stock, just initiated differently.

This is why stock selection matters more than strike selection. Don't sell puts on garbage companies just because the premium looks good. Sell them on stocks you actually want to own at prices you'd actually want to pay.

Would you be comfortable owning this company for the next 2-3 years if you had to? If the answer is no, don't sell the put. The premium isn't worth the headache.

Position Sizing Reality

Here's where beginners mess up: they sell puts on their entire account.

If you have $10,000, you could sell two $45 puts on XYZ. That ties up $9,000 in buying power. One bad earnings report and you're stuck holding shares in a concentrated position with no capital to do anything else.

Better approach: use 20 to 25% of your account per position. With $10,000, that's 2 to 3 different stocks, each with one put contract. You stay diversified. You keep dry powder. You don't blow up on a single bad pick.

When This Strategy Fails

Cash-secured puts work until they don't. Here's when they break:

During crashes. March 2020, you would've been assigned on everything. Premium collected wouldn't have covered the drawdowns. You'd own stocks down 30 to 40% from your strike prices.

On expensive stocks with low yields. If you're selling puts on a $500 stock that doesn't pay dividends, getting assigned means $50,000 of capital sitting in one position. That's a problem for most retail accounts.

When you chase premium. High implied volatility means high premium. It also means the market expects big moves. If you're selling puts just because they're paying well, you're betting against the market's fear. Sometimes that fear is justified.

Making This Systematic

The traders who actually make money with cash-secured puts don't wing it. They have rules:

• Only sell puts on stocks they would own

• Keep position sizes under 25% of account value

• Target 30 to 45 day expirations for optimal time decay

• Aim for strikes with 70 to 80% probability of profit

• Roll or adjust positions at 21 days to expiration, not at expiration

• Set maximum loss thresholds per position (usually 2 to 3x premium collected)

This isn't exciting. But it's repeatable. And repeatable is what compounds.

What Happens After Assignment

Getting assigned isn't failure, it's part of the strategy.

You now own shares below where the stock currently trades (assuming you collected decent premium). You have options:

Hold the shares and sell covered calls against them. This is "The Wheel" strategy, which deserves its own article.

Sell the shares immediately if you've changed your thesis on the company. Take the loss, learn from the position, move on.

Average down by selling more puts at lower strikes. Risky, but viable if you genuinely believe in the company long-term.

Most systematic traders do option one, they transition to covered calls and keep generating premium on the shares they now own.

The Boring Truth

Cash-secured puts won't make you rich quickly. They won't give you 500% returns in a week. They won't be exciting to talk about.

What they will do: generate consistent premium, get you into stocks at better prices than market orders, and teach you how options actually work without blowing up your account.

That's the foundation. Master this, and you can build toward more sophisticated strategies. Skip this, and you'll keep gambling on directional bets wondering why your account never grows.

Start small. Sell one put on a stock you understand. Watch how time decay works. See what happens at expiration. Do it again.

The market will still be here tomorrow. There's no rush.

Probabilities over predictions,

Andy

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Disclaimer: This is educational content only. Not investment advice. Options involve risk and aren't suitable for all investors. Examples are illustrative. Real results will vary. Talk to professionals before you risk real money.