A Cash-Secured Put is the starting engine of the options wheel strategy. By selling a CSP, you agree to buy 100 shares of an underlying stock at a specific strike price on or before a specific expiration date. In exchange for taking this obligation, the options buyer pays you a premium.
To make the put "cash-secured," your broker requires you to hold the cash equivalent of (Strike Price × 100) in your account as collateral. This ensures you can actually afford to buy the shares if the stock drops.
Why sell a CSP instead of just buying the stock? Selling a CSP gives you an immediate premium income that reduces your effective purchase price. If the stock never drops to your strike, you keep the premium and sell another one. If it does drop, you acquire shares at a price you were comfortable with anyway — but at an even better effective cost because of the premium received.
Strike Selection: Most wheel traders sell puts at a delta between 0.20 and 0.35, which represents a roughly 20-35% probability of being assigned. Lower delta = safer but less premium. Higher delta = more premium but higher assignment risk.
Examples of Cash-Secured Put (CSP) in Action
- 1Selling 1 contract of AMD $100 Put expiring next week, securing $10,000 in cash, and collecting a $150 premium.
- 2Selling a 30-delta put on NVDA at the $450 strike expiring in 21 days, collecting $8.50 ($850 total) with $45,000 collateral secured.
- 3Selling an OTM put at the $95 strike when the stock is at $100, targeting a 2% monthly return on secured capital.