1) Quick start: What a cash-secured put is

A cash-secured put means:

• You set aside enough cash to buy the shares if you are assigned
• You sell a put option on a stock
• In return, you receive option premium upfront

If the buyer exercises, you may have to buy the shares at the strike price before or at expiry.
Many investors use a cash-secured put as a paid limit order. Instead of placing a limit buy order and waiting, you commit to buy at a chosen price and get paid for making that commitment.

A cash-secured put is often used when an investor:

• Wants to buy a stock, but prefers a lower entry level
• Is comfortable owning the stock at the strike price
• Wants to earn income if the stock stays above the strike

The key trade-off is simple: The premium provides income, but you take on the obligation to buy shares if the stock falls.

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2) Before you place the trade: Guardrails that prevent regret

Most unwanted outcomes happen because the put was sold mainly for premium, without a clear willingness to own the stock at the strike.
These guardrails keep the strategy conservative.

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Only sell puts on shares you would actually own

If you would not be comfortable holding the shares after assignment, the trade is not conservative.

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Choose a strike that matches your true entry level

Before selling, imagine the stock drops sharply and you are assigned at the strike.

• Are you still comfortable owning the shares?
• If the answer is no, the strike is probably too high for your goals

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Define your plan in one sentence

Use one of these as a starting point:

• “I am happy to own the shares at the strike, and I want income while I wait.”
• “I want income, but I will close or roll if the stock drops below the strike.”

The second sentence is valid, but it usually means more active management.

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Know what changes the game

Cash-secured puts can behave differently around:

• Earnings announcements
• Major company news (guidance, regulation, product setbacks)
• Broad market shocks

Large moves can exceed what the option market was pricing in. This is especially relevant around earnings.

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Keep enough cash and avoid concentration

A cash-secured put is only cash-secured if the cash is actually available.
If assignment would create an oversized position in one stock, the trade may be too large.

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3) The three management actions

When a cash-secured put is open, there are only three broad actions available.

1) Do nothing

Let the position run when the original outcome is still acceptable.

2) Close the put

Buy back the short put to remove the obligation to buy shares.

3) Adjust by rolling

Close the current put and open a new one, usually with a later expiry and sometimes a different strike.
Rolling is not a free fix. It replaces one set of trade-offs with another.

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4) The decision tree: Three common paths

This section covers the three situations most investors encounter.

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Case a: The stock stays above the strike

This is the quiet outcome. The put may lose value over time.
Typical choices:

• Hold to expiry if the remaining premium is still meaningful and you are comfortable with assignment risk
• Close early if most of the premium has been earned and you want to remove the remaining risk
• Sell a new put later if the current put is closed and you still want to pursue a planned entry level

A practical takeaway: Closing early is often considered when the remaining premium is small compared with the remaining time.

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Case b: The stock falls below the strike and expiry is approaching

This is where investors often feel pressure, especially after an event such as earnings.
You have three broad choices. None is always correct. The best choice depends on your goal.

Choice 1: Accept assignment

If you still want to own the shares, assignment can be the planned outcome.
What you typically get:

• Shares at the strike price
• The premium you already received (which lowers your effective entry price)

What to watch:

• If the stock has fallen far below the strike, you may start with an unrealised loss

Choice 2: Close the put to avoid ownership

• If you no longer want the shares, you can buy back the put.
• The main trade-off is that if the stock is below the strike, the put can be expensive to buy back.
• Closing is most common when the investment case has changed or when owning the shares would create unwanted concentration.

Choice 3: Roll the put

Rolling is typically used when you still like the stock but want to change the terms of the commitment.
A roll can:

• Move the expiry further out (more time)
• Move the strike lower (a more conservative entry level)
• Do both

Some rolls are done for a net credit, some for a net debit. The important point is that the new position has new trade-offs.

A conservative way to judge a roll is to ask:

• Does this roll improve the price level at which I might buy shares?
• Does it buy time for a reason I can explain clearly?

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Case c: You were assigned shares

After assignment, you own the stock. The question becomes: Do you want to keep it, reduce it, or exit it?

Option 1: Keep the shares

This can be appropriate if the original investment thesis is intact.
Some investors then consider selling a covered call, but only if they are comfortable selling shares at the chosen strike.

Option 2: Sell the shares and reset

This is the cleanest way to remove the position if you no longer want it.
Trade-off: You may realise a loss if the stock is below your effective entry price.

Option 3: Reduce the position and manage the remainder

Some investors sell part of the shares to reduce exposure and keep the rest as a long-term holding.

5) Key risks and frictions to understand

This section is designed to prevent avoidable surprises.

Event risk and gaps

Stocks can gap down after news. This is most common around earnings.
The practical takeaway: A cash-secured put is not the same as a limit order. The obligation remains even if the stock drops sharply.

Liquidity and bid-ask spreads

Rolling and closing can be more expensive when options are illiquid or spreads are wide.
The practical takeaway: Management decisions should consider transaction costs, not just headline premium.

Concentration risk

Assignment can create a large position in one stock at exactly the wrong time.
The practical takeaway: Size the trade so that assignment is manageable.

6) Special cases and common questions

This section addresses frequent real-life questions that do not fit neatly into the decision tree.

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The stock dropped beyond my strike after an event. I still want the shares, but I would prefer to wait for a recovery and harvest premium in the meantime

This situation often occurs when an investor sold a put well below the market, but a sharp event-driven move pushed the stock even lower.
The investor still wants to own the shares, but prefers not to be forced into buying immediately.
There are four practical approaches.

Approach 1: Accept assignment and keep the plan simple

If you still want the shares and are comfortable owning them now, assignment may be the cleanest choice.
The advantage is simplicity. The risk is that the stock could continue falling after you take ownership.

Approach 2: Roll out to buy time

Rolling to a later expiry keeps the strike but pushes the decision date out.
Why it can be helpful:

• It gives the stock time to stabilise
• It may allow you to collect additional premium

Why it can be risky:

• You keep the same entry level even though the stock is now lower
• If the stock continues falling, you may be delaying a difficult decision rather than improving it

Approach 3: Roll down and out to aim for a lower entry level

Rolling to a lower strike and a later expiry attempts to align the put with the new price reality.
Why it can be helpful:

• It targets a lower entry level
• It can reduce the chance of being assigned at a level you would no longer choose today

Why it can be risky:

• If the stock rebounds quickly, you may not get assigned and could miss the re-entry

Approach 4: Close and reassess, then re-enter when conditions are clearer

If the event changes your confidence in the stock, closing can be the conservative option.
This avoids being anchored to the original strike.
The trade-off is that you may buy back the put at a loss and you may have to re-enter later at a different price.
A simple check that helps avoid regret is:

• If you had no put position today, would you sell a new put at this strike and expiry?

If the answer is no, consider simplifying.

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I got assigned shares, but I do not want them. Should I just sell them?

If you do not want the shares, selling them is the cleanest way to remove the position.
Some investors consider selling a covered call instead, but that is a different strategy. It can generate premium, but it does not remove downside risk and it caps upside if the stock rebounds.

A conservative approach is to decide which goal matters most:

• If the priority is to reduce risk quickly, selling the shares is usually the most direct choice
• If the priority is to keep the position but work towards an exit over time, a covered call may be considered, but only with a strike you are willing to sell at

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7) FAQ

• Should I always roll if the stock goes below my strike?

No. Rolling can be appropriate, but only if it has a clear purpose, such as buying time or improving the potential entry level.

• Is being assigned always bad?

No. For many investors, assignment is the intended outcome: It buys shares at the strike and keeps the option premium.

• What is the biggest mistake with cash-secured puts?

Selling a put mainly for premium without being comfortable owning the shares at the strike.

Important information

Options involve risk and are not suitable for all investors. Any strategy examples are for educational purposes only and do not constitute investment advice. Outcomes depend on market conditions, pricing, fees and taxes, and investor circumstances.