Cash-Secured Put: Buy Stocks at Your Target Price (And Get Paid to Wait)
A cash-secured put sells a put on a stock you would be happy to own, with cash set aside to cover the purchase if assigned. Two outcomes: stock stays above strike and you keep the premium, or stock drops to strike and you buy at a price you already wanted, with the premium reducing your effective cost basis.
The CSP works because both outcomes are acceptable to the seller. That asymmetry — both outcomes positive — is rare in markets and is what makes the strategy psychologically robust through inevitable drawdowns. The structure also pairs naturally with covered calls: get assigned shares via CSP, then sell covered calls against the shares (the wheel strategy). Repeated indefinitely, it becomes a high-probability income engine on quality stocks.
Setup that works: pick a stock you want to own at a discount, sell a 30–45 DTE put at the 0.20–0.30 delta strike, take profit at 50% of max gain. The single failure mode: selling CSPs on stocks you don't actually want to own at any price. The premium does not compensate for being forced into a falling knife. Quality of the underlying matters more than the premium collected.
Frequently Asked Questions
How much cash is required for a CSP?
Strike × 100 per contract. A $50 strike needs $5,000 in cash collateral.
What's the difference between a CSP and a naked short put?
Mechanically identical position; capital requirement differs. A CSP fully reserves the assignment cash; a naked short put is held against margin, freeing capital for other positions but adding margin call risk.