Cash-secured put.
In plain English
In a cash-secured put, an investor sells a put and sets aside cash equal to the strike price times the contract size, so the purchase can be funded if assigned. The seller collects a premium immediately. If the stock stays above the strike, the option expires and the premium is kept. If it falls below, the seller buys the shares at the strike, which is above the market price at that moment. The cash backing is what separates it from a naked put, where no funds are reserved and the broker extends margin instead.
01Why it matters
The premium is collected up front but the obligation is real, and assignment tends to arrive precisely when the stock has fallen and buying it looks least appealing.
02The math, step by step
You sell a $45 put for $1.50, reserving $4,500. If the stock finishes at $47 the option expires and you keep $150. If it finishes at $38 you buy 100 shares at $45, an effective cost of $43.50 after the premium, while the market price is $38.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
A limit order fills only if the stock reaches your price, and you can cancel it any time. A sold put creates an obligation you cannot simply withdraw, and assignment can happen after the stock has fallen well below the strike. One is a request; the other is a contract.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice