The Beginner’s Guide to Cash-Secured Puts - Income and Discounts in One Strategy

Why Cash-Secured Puts Matter

Options are often sold as lottery tickets. A small bet on a call or put, and maybe you double your money. But professionals don’t build careers on lottery tickets. They survive by putting time, math, and probabilities on their side.

That’s why one of the first strategies every serious trader learns is the cash-secured put.

Instead of trying to guess where a stock is headed, you decide the price you’d like to pay and then collect income for waiting. It’s the disciplined, patient alternative to speculating, and it’s one of the foundations of professional options trading.

What a Cash-Secured Put Really Is

A put option gives the buyer the right to sell 100 shares at a strike price before expiration. When you sell that put, you take the other side of the trade. You’re agreeing to buy those 100 shares if assigned.

“Cash-secured” means you actually have the cash to buy them. Sell a $40 put, and you keep $4,000 ready in your account.

In return for making that promise, you collect premium upfront. That premium is yours no matter what happens.

A Real Example: DraftKings (DKNG)

DKNG trades around $48. Let’s say you’d like to own shares but prefer a price near $45.

You could:

• Place a limit order at $45 and wait. That earns nothing.

• Or sell the October 17, 2025 $45 put for $1.13. That’s $133 in cash collected today.

Two possible outcomes:

1. DKNG stays above $45. The put expires worthless. You keep the $113. That’s about 2.5% on the $4,500 set aside over 48 days. Annualized, it’s 20.8%.

2. DKNG falls below $45. You’re assigned 100 shares, per contract, at $45. But your effective cost is $43.87 after subtracting the premium. You own the stock at a discount of 8.6%.

Either result is acceptable. You either earn income or buy shares at a better price.

Why This Strategy Works for Professionals

Premium Reduces Cost Basis

Every premium collected lowers the price you pay if assigned. That discount compounds over time.

Probabilities Work in Your Favor

Delta of the option tells you the approximate probability of finishing in the money. In this DKNG case, the $45 put with 27 delta carries about a 68.1% chance of expiring worthless. You’re stacking odds on your side.

Time Decay Helps You

As days pass, options lose value. That’s theta. For put sellers, time decay works like a paycheck dripping into your account.

Assignment Is Not Failure

This is where new traders misunderstand. If you want to own DKNG, being assigned isn’t losing. It’s buying the stock cheaper than the market.

Risk Management: Where Traders Go Wrong

Stock Collapse

If DKNG fell to $25 over the 48 days, you’d still be obligated to buy at $45. The $1.13 premium cushions but doesn’t save you. That’s why you only sell puts on stocks or ETFs you’re comfortable owning long term.

Tied-Up Cash

The strategy requires you to lock up cash. That’s the tradeoff. The cash is safe but unavailable for other trades.

Position Sizing

This is where beginners fail. Selling too many puts looks tempting because of the steady income. But if you’re assigned, you may own far more stock than you ever wanted. A good rule: never sell more puts than you’re willing to own 100 shares per contract. For most portfolios, a single put should be no more than 2% to 5% percent of capital. Risk-management is the most important aspect of any strategy.

Where Cash-Secured Puts Fit in a Portfolio

Cash-secured puts are more than a single trade. They’re a capital allocation tool.

• In low volatility markets, premiums are smaller. Returns look modest, but they keep you disciplined.

• In high volatility markets, premiums rise. This is when selling puts feels hardest, and when it often pays most.

• In a broader strategy mix, CSPs are the natural entry into the Wheel Strategy: sell puts to enter, then sell covered calls to generate ongoing income.

Think of CSPs as your patient, steady stock-acquisition tool that works in the background while other strategies provide income and hedges.

The Probabilities Behind the Trade

Professionals don’t think in “if/then.” They think in probabilities.

Take the DKNG $45 put at 0.27 delta. That means about a 27% chance of assignment, or a 68.1% chance of expiring worthless.

You’ve tilted the math in your favor. Over 10 trades, you’ll likely keep premium on 7 or 8. On the other 2 or 3, you’ll buy stock at a discount. That’s the law of large numbers. It’s not exciting, but it’s how consistent traders compound.

A Simple Way to Picture It

Think of it as getting paid to leave a standing offer. You want a house listed at $500,000, but you’d only buy it at $450,000. The seller pays you $5,000 today to make that promise.

• If the house never drops, you keep the $5,000.

• If it does, you buy at $450,000. In reality, your net cost is $445,000 after the payment.

That’s the essence of the cash-secured put.

Takeaways for Beginners

• Sell puts only on stocks or ETFs you want to own.

• Assignment is part of the plan, not a mistake.

• Premium lowers your cost basis every time.

• Use proper position sizing. Keep it small, controlled, and repeatable.

• Let the probabilities work. Focus on 30-60 days to expiration, where premium is most efficient.

Final Word

Cash-secured puts won’t make headlines. They aren’t about quick doubles. They are about consistent discipline.

You define your price, set aside cash, and get paid while you wait. If you’re assigned, you own stock cheaper than the market. If not, you still collect income.

This is the difference between professionals and speculators. Speculators guess. Professionals sell premium.

For beginners, there’s no better starting point than the cash-secured put. It’s simple, probability-based, and a foundation you can build on for the rest of your trading life.

Probabilities over predictions,

Andy Crowder

📩 Want to see these trades in real time?
Subscribe to The Option Premium, my free weekly newsletter with strategies, trade breakdowns, and clear probabilities explained.

🎯 Ready to Elevate Your Options Trading?
Subscribe to The Option Premium, a free weekly newsletter delivering:
✅ Actionable strategies.
✅ Step-by-step trade breakdowns.
✅ Market insights for all conditions (bullish, bearish, or neutral).

📩 Get smarter, more confident trading insights delivered to your inbox every week.

📺 Follow Me on YouTube:
🎥 Explore in-depth tutorials, trade setups, and exclusive content to sharpen your skills.