Cash-Secured Put

A cash-secured put involves selling a put option while setting aside enough cash to purchase the underlying shares at the strike price if assigned. You collect premium upfront, and in return, you accept the obligation to buy 100 shares at the strike price if the stock falls below it by expiration. The cash reserve ensures you can fulfill this obligation without using margin.

This strategy is essentially getting paid to wait for a stock you want to buy at a lower price. If the stock stays above the strike, you keep the premium as pure income. If the stock drops below the strike, you buy shares at an effective cost basis of the strike price minus the premium collected — often well below the current market price. The risk is that the stock drops significantly below the strike, leaving you holding shares at an unrealized loss.

Cash-secured puts are a core component of the "wheel strategy," which alternates between selling puts (to acquire shares at a discount) and selling covered calls (to generate income on shares you own). This cycle can generate consistent income in range-bound or slowly rising markets. Options Pilot's scoring system helps identify when conditions favor this approach: elevated IV (Value pillar) means fatter premiums, bullish or neutral sentiment (Sentiment pillar) supports the thesis, and adequate liquidity (Liquidity pillar) ensures efficient execution.