Cash-secured puts
A cash-secured put is a promise to buy 100 shares at the strike if asked, with the cash set aside. The buyer pays you a premium for that promise.
The mechanics
You sell to open one put contract at a strike below the current price and receive the premium immediately. Your broker holds strike × 100 in cash as collateral. At expiry, one of three things happens:
- Stock above the strike: the put expires worthless. You keep the full premium and the collateral is released.
- Stock below the strike: you are assigned 100 shares at the strike. Your effective cost is the strike minus the premium.
- You close early: you buy the put back. Profit is premium received minus the buy-back price. Many wheel traders close at 80 to 90 percent of the premium captured and redeploy.
Picking strike and expiry
Strike sets how likely assignment is and how much premium you receive. Expiry sets how fast time decay works for you: 20 to 45 days out is the usual range because decay accelerates in the last month while the premium is still worth the trouble. Check the earnings date and ex-dividend date before you sell; both move the stock and the second can trigger early assignment of in-the-money puts.
Breakeven and return
Breakeven is strike minus premium. Return on collateral is premium ÷ (strike × 100); annualise by multiplying by 365 ÷ days to expiry. A $0.60 premium on a $30 put with 30 days left is 2.0 percent on collateral, or about 24 percent annualised if repeated, before assignments and losses.
When a put is tested
If the stock drops toward your strike you can take assignment (the plan, if you chose the stock well), roll down and out for a credit (buy this put back, sell a later one at a lower strike, net positive), or close for a loss. Rolling for a debit rarely pays; it is a loss you have chosen not to book yet.
What to record
Date opened, underlying, strike, expiry, contracts, premium per share and total, collateral, and how it ended: expired, assigned, or bought back at what price. Keep the premium against the stock, not just the contract, so that if you are assigned you know your true cost basis. WheelCopilot reads all of this from a Fidelity activity export and labels each close Expired, Assigned or bought back.
Frequently asked questions
What is the difference between a cash-secured put and a naked put?
The same contract, but a cash-secured put has the full strike × 100 in cash set aside, so assignment can always be met. A naked put is sold on margin with less cash reserved, which raises the return and the risk.
Do I keep the premium if I'm assigned?
Yes. The premium is yours the moment you sell the put. On assignment you pay the strike for the shares; the premium reduces your effective cost.
Can a put be assigned before expiry?
Yes, American-style equity options can be assigned at any time, though it is uncommon unless the put is deep in the money or an ex-dividend date is near.
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