What is a cash-secured put?

A cash-secured put is a way to earn income by selling a put option while holding enough cash to buy the stock if you are assigned. You collect a premium up front, and you either keep it or end up owning shares at a price you chose.

How it works

When you sell a put, you take on the obligation to buy 100 shares at the strike price if the buyer exercises. In return you receive a premium. "Cash-secured" means you set aside the full cost of those shares (the strike times 100) so you can honor the trade. There are two outcomes at expiry:

• The stock stays above your strike. The put expires worthless, you keep the entire premium, and your cash is freed up to do it again.
• The stock falls below your strike. You buy the shares at the strike, which is a price you were willing to pay, and your effective cost is the strike minus the premium you already collected.

The return math

Your return on capital is the premium divided by the cash you set aside. Sell a $95 put for $2.00 and you collect $200 against $9,500 of secured cash, a 2.1% return. To compare trades of different lengths, that is annualized: a 2.1% return over 40 days is roughly 19% a year. Selling further from the price lowers the yield but raises the odds of keeping the whole premium.

The wheel strategy

Many income sellers run the wheel: sell cash-secured puts on a stock you would be happy to own. If you get assigned, you own the shares, and you then sell covered calls against them for more premium until the shares are called away. Then you start over. The whole approach depends on picking names you actually want to hold, because assignment is always on the table.

Its risks

• You take the downside. If the stock craters, you are buying it at the strike while it keeps falling. The premium softens a small drop, not a large one.
• Your upside is capped. The most you can make on the put is the premium, no matter how far the stock rises.
• Events add risk. Earnings or other catalysts before expiry can move the stock through your strike quickly, which is why the timing of earnings matters.

How MomentumSift uses it

MomentumSift's cash-secured put screener finds the roughly 30-delta put to sell on every large-cap name, refreshed during market hours from live quotes, and ranks them by annualized return with the probability of profit, downside cushion, IV rank, and an earnings-before-expiry warning next to each one. A wheel-quality filter narrows it to names in an uptrend with strong relative strength, so you are selling premium on stocks worth owning.

FAQ

What is a cash-secured put in simple terms?

You sell a put and keep enough cash to buy 100 shares at the strike. You collect a premium up front; if the stock stays above the strike you keep it, and if it falls below you buy the shares at the strike.

What is the wheel strategy?

You sell cash-secured puts on a stock you would be happy to own. If assigned, you own the shares and sell covered calls against them for more income until they are called away, then repeat.

What is the risk of selling a cash-secured put?

Your downside is owning the stock at the strike while it keeps falling, minus the premium collected. The premium cushions a small drop, not a large one, so only sell puts on names you would be comfortable holding.