Cash-Secured Put

Core Thesis

A Cash-Secured Put is a limit-order replacement that pays you while waiting. You accept assignment risk in exchange for premium, while holding sufficient cash to buy shares if exercised.

Structure and Capital Discipline

• Short 1 put at strike $K$.
• Reserve cash equal to $K \times 100$ (or broker-defined equivalent).
• No leverage assumption: assignment can be fulfilled without forced liquidation.

Expiration Payoff Mathematics

With premium received $P_0$:

$$\Pi_T = P_0 - \max(K - S_T, 0)$$

• Max profit: $P_0$.
• Break-even: $K - P_0$.
• Max loss: $K - P_0$ (if stock goes to zero).

Greek and Volatility Profile

• Positive delta (bullish/neutral).
• Positive theta (time decay harvested).
• Short vega (volatility expansion hurts).
• Negative gamma (adverse moves increase directional pain).

Strike and Tenor Selection

• Assignment-first approach: choose strike where you are happy owning shares.
• Premium-first approach: typically 20-45 DTE with put delta ~0.15-0.30.
• Prefer elevated IV rank if thesis can absorb downside volatility.

Management Framework

• Close early after capturing 50-80% of credit to reduce tail exposure.
• Roll down/out only if updated thesis still supports ownership.
• If assigned, predefine next step: hold shares, sell covered call, or reduce.

Failure Modes

• Selling puts on weak balance-sheet names for yield pickup.
• Repeatedly rolling losers without updated fundamental thesis.
• Concentrating many short puts in correlated names.

Practical Checklist

• Do you want to own this stock at effective basis $K - P_0$?
• Is cash truly reserved, or are you quietly levering via overlapping obligations?
• Is credit sufficient for the left-tail risk you assume?