Quick answer
What is a cash-secured put?
A cash-secured put is an options strategy where you sell a put option and hold enough cash to buy the shares if the option is exercised. You keep the premium either way. If the stock stays above the strike at expiry, the put expires worthless; if it falls below, you buy 100 shares per contract at the strike, with the premium lowering your effective cost.
Key takeaways
- 01You are paid premium to agree to buy at the strike.
- 02Break-even = strike − premium (here $92.50).
- 03Cboe PUT index: 9.40% a year vs 9.91% for the S&P 500 (1986–2023), with lower volatility.
- 04Upside is capped at the premium; downside is close to owning the stock.
| Cash held | Strike × 100 per contract |
|---|---|
| Max gain | Premium received |
| Max loss | Strike − premium (stock to $0) |
| Break-even | Strike − premium |
| PUT index return (1986–2023) | 9.40% a year |
| Tax (stock options) | Short-term gain, usually |
The Short Answer
What is a cash-secured put?
A cash-secured put is an options strategy where you sell a put option and hold enough cash to buy the shares if the option is exercised. You keep the premium either way. If the stock stays above the strike at expiry, the put expires worthless; if it falls below, you buy 100 shares per contract at the strike, with the premium lowering your effective cost.
Example: with a stock at $100, selling a $95 put for $2.50 sets aside $9,500 per contract and earns $250. Your break-even is $92.50. The Cboe S&P 500 PutWrite Index, which models this on the S&P 500, returned 9.40% a year from 1986 to 2023 with about two-thirds of the index's volatility.
How It Works
How does a cash-secured put work?
Pick a stock you would own
Only sell puts on stocks you are happy to buy at the strike.
Choose a strike and expiry
Lower strikes pay less premium but are less likely to be assigned.
Sell the put and hold the cash
Set aside strike × 100. For a $95 strike that is $9,500.
At expiry
Above the strike: keep the premium and repeat. Below: buy the shares at the strike.
Payoff
What does a cash-secured put pay at expiry?
Chart
Profit at expiry per share: $95 cash-secured put vs owning the stock (bought at $100)
Calculator
Cash-secured put calculator
Enter the strike, premium per share, days to expiry and number of contracts.
Cash to set aside
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Premium received
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Return on cash (this trade)
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Annualized if repeated
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Break-even price
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The Record
Do cash-secured puts beat buying stocks?
The Cboe S&P 500 PutWrite Index (PUT) sells one-month at-the-money S&P 500 puts each month, fully collateralized by Treasury bills. Cboe's study covering July 1986 to August 2023 found:
Chart
Cboe PUT index vs S&P 500, July 1986–August 2023
Put writing gave up about half a point a year of return for about a third less volatility and a much smaller worst drawdown. It still lost about a third of its value at the worst point, so it is not a low-risk strategy.
Where Embark fits
Put writing needs cash and a monthly routine. What could your existing stock target in income instead?
Run your ticker to see the income target on a position you already own.
- No option account, strike selection or monthly rolling required to pursue income
- §721 in-kind contribution of the stock you own: $0 tax at contribution
- Targets 10%+ annual income; a target, not a guarantee, with a 3-year lock-up
Run the numbers
Live prices · takes under a minute · no obligation
Risks
What are the risks of selling cash-secured puts?
Large drops
If the stock falls 40%, you buy at the strike and own a big loss, softened only by the premium.
Capped upside
If the stock rallies, you earn only the premium and miss the gain.
Early assignment
American-style stock options can be assigned before expiry, usually when deep in the money.
Cash drag
The cash earns money-market rates, which helps, but cannot be used elsewhere.
Taxes
How are cash-secured puts taxed?
For options on individual stocks and ETFs, the premium is not taxed when received. If the put expires, it is a short-term capital gain on expiry. If you buy it back, the difference is a short-term gain or loss. If you are assigned, the premium reduces the cost basis of the shares you buy. Options on broad indexes such as SPX are Section 1256 contracts taxed 60% long-term and 40% short-term.
Short-term gains are taxed at ordinary rates, up to 40.8% federally with NIIT.
Embark
Is there a simpler route to option-like income?
Put writing needs idle cash and monthly decisions. If your capital is already in appreciated stock, Embark accepts the shares in kind under §721, with $0 tax at contribution, and targets 10%+ annual income without you running an options program. Target, not guarantee; 3-year lock-up; accredited investors only.
FAQ
Frequently asked questions
Are cash-secured puts safe?
They are safer than naked puts because the cash is there, but you still take nearly the full downside of the stock below the break-even.
What happens if a cash-secured put is assigned?
You buy 100 shares per contract at the strike price, using the cash you set aside.
How much can you make selling cash-secured puts?
The premium is the maximum gain; it depends on volatility, strike and time to expiry.
Is a cash-secured put the same as a covered call?
Economically similar: by put-call parity, a cash-secured put and a covered call at the same strike and expiry have the same payoff.
How are cash-secured puts taxed?
On individual stocks, as short-term capital gains when they expire or are closed; if assigned, the premium lowers your share basis.
What is the Cboe PutWrite Index?
A benchmark that sells one-month at-the-money S&P 500 puts each month, collateralized by Treasury bills.
Sources
Primary sources
Sources
- Cboe: Cash-secured put writing and the Cboe S&P 500 PutWrite Index (PUT), 1986–2023
- OCC: Characteristics and Risks of Standardized Options (Options Disclosure Document)
- 26 U.S. Code §1234: Options to buy or sell (tax on option writers)
- IRS Publication 550: Investment Income and Expenses (options and Section 1256)
- 26 U.S. Code §1256: Section 1256 contracts marked to market (60/40 rule)
- 26 U.S. Code §721: Nonrecognition on contribution to a partnership
Cite this article
Embark Funds Research. “Cash-Secured Puts Explained Getting Paid to Wait.” Embark Funds, updated October 29, 2026. https://www.embarkfunds.com/insights/cash-secured-puts-explained
Not tax, legal or investment advice: This article is educational and is not tax, legal, investment or Medicare advice. Rules and dollar amounts change every year and depend on your facts. Work with a CPA or financial planner before acting. Embark income figures are targets, not guarantees. Contributed shares have a 3-year lock-up, and Embark is open to accredited investors only.
Options Income, Section 1256 & Box Spreads Series
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