The Cash-Secured Put — Getting Paid to Set a Limit Order

The construction

Sell a put at a strike you would happily BUY the stock at, holding the full strike × 100 in cash ("secured"). You collect the premium up front. Two outcomes: (1) stock stays above strike → put expires worthless, you keep the premium, repeat; (2) stock falls below strike → you are ASSIGNED and buy 100 shares at the strike — which was the plan — at an effective cost of strike − premium.

Why it is a limit order with income

A CSP is functionally "buy limit at the strike, but I get paid while I wait." The premium is compensation for the possibility you get filled during a dip. The risk is the mirror: if the stock CRATERS (−40%), you buy at the strike anyway and eat the full decline below it — the premium cushions only a few percent. CSPs are income on QUALITY names you want, not a way to catch falling knives.

Selection rules

Underlying: excellent companies you have analyzed (days 15–21) and want to own at the strike — assignment is the ENTRY, not the accident. Strike: below current price (OTM), at a level your valuation supports. IV: higher IV = richer premium (day 52) — but never chase premium into trash. Cash: fully secured, always — the "secured" is the entire risk management.

Sources

• Cash-Secured PutCBOE education
• The Wheel Strategytastytrade