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Secured Put/Cash-Secured Put

Trading Term

A secured put, more commonly known as a cash-secured put, is an options trading strategy in which an investor sells a put option and sets aside enough cash to purchase the underlying asset if assigned. It’s a relatively conservative, income-generating strategy often used by investors who are willing to buy the stock at a lower price and want to collect a premium while waiting.

How It Works:

The investor sells (writes) a put option on a stock they are interested in owning, choosing a strike price at which they would be comfortable buying the stock. To “secure” the put, the investor sets aside enough cash to buy the stock if the option is exercised (i.e., if the stock price falls below the strike price). For example, if you sell a put with a strike of $50 and the contract size is 100 shares, you must reserve $5,000.

If the stock remains above the strike price through expiration, the option expires worthless, and the investor keeps the premium as profit. If the stock falls below the strike price, the investor is obligated to buy the stock at the strike price, but they effectively purchase it at a discount because they also keep the premium received.

Why Use a Cash-Secured Put?

  • Income Generation: The strategy allows investors to earn premium income while waiting to potentially buy a stock at a lower price.
  • Buy Stocks at a Discount: It’s an attractive way to accumulate long-term holdings below current market prices.
  • Defined Risk: Since the investor has reserved the full amount needed to buy the stock, risk is limited to the cost basis, making it more conservative than selling naked puts.

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