OPTIONS
Cash Secured Put Calculator \u2014 Premium Income Strategy
By Worldtickers ·
Use our free cash secured put calculator to estimate premium income, annualized return, and breakeven for selling cash secured puts. Enter your target strike, premium, and capital to see the full payoff.
This cash secured put calculator \u2014 premium income strategy tool focuses on use our free cash secured put calculator to estimate premium income, annualized return, and breakeven for selling cash secured puts. Enter your target strike, premium, and capital to see the full payoff. Use it to test option prices, strikes, premiums, expiration assumptions, and strategy outcomes so you can compare payoff scenarios, break-even levels, risk, and potential reward before placing an options trade.
Cash Secured Put Calculator
Cash-Secured Put Calculator
Evaluate the return and risk of selling cash-secured puts.
What Is a Cash Secured Put?
A cash secured put is a strategy where you sell a put option and set aside enough cash to purchase 100 shares of the underlying stock at the strike price. By selling the put, you receive a premium upfront. In return, you take on the obligation to buy the stock at the strike price if the option is exercised against you.
This strategy is popular among value investors and income seekers. If you want to buy a stock but think it is currently overpriced, selling a cash secured put lets you earn income while waiting for the price to come down. If the stock drops to your target strike, you are assigned and buy the shares at a lower effective cost (strike price minus premium received). If the stock never drops, you keep the premium and deploy your cash elsewhere.
The cash secured put is also known as a 'naked put' when the cash is not specifically set aside, but the cash secured version is the conservative variant where you always have the funds ready to take assignment. This makes it a defined-risk strategy and suitable for retirement accounts where margin is restricted.
How to Use This Calculator
The calculator requires four inputs to produce a complete payoff analysis for your cash secured put.
Current Stock Price
Enter the current market price of the stock. This is used to evaluate how far out of the money the put is and to provide context for the analysis. It also helps calculate the effective discount you receive if the put is assigned.
Strike Price
Enter the strike price of the put you plan to sell. This is the price at which you will buy 100 shares if the option is exercised. Choose a strike at or below your target purchase price for the stock. A lower strike means less premium but a better entry price if assigned.
Premium and Days to Expiration
Enter the premium you expect to receive per share and the number of days until the option expires. The premium is your income. The time to expiration is used to calculate the annualized return, which shows how the premium income scales to a yearly rate.
Reading the Output
The calculator shows your maximum profit (the premium), maximum loss (strike price minus premium), breakeven price, and annualized return. It also shows the effective purchase price if assigned (strike minus premium) and the percentage discount to the current stock price.
Formula
The key formulas for a cash secured put are:
Max Profit = Premium Received
This occurs when the stock closes at or above the strike price at expiration and the put expires worthless.
Max Loss = Strike Price \u2212 Premium Received
This occurs if the stock goes to zero. Your loss is the strike price (the amount you paid for the shares) minus the premium you collected.
Breakeven = Strike Price \u2212 Premium Received
If the stock closes below the breakeven at expiration, you have a net loss on the combined position.
Annualized Return = (Premium / Strike Price) \u00d7 (365 / Days to Expiration) \u00d7 100
This scales the premium return to a yearly rate for comparison with other income strategies.
Effective Purchase Price = Strike Price \u2212 Premium Received
This is your true cost basis if the put is assigned and you buy 100 shares.
Examples
Example 1: Cash Secured Put on GOOGL
GOOGL is trading at $140. You want to own it but think $140 is too expensive. You sell a 30-day put with a $130 strike for $3.00 per share ($300 premium). If GOOGL stays above $130 at expiration, the put expires worthless and you keep the $300 premium. Your annualized return is ($3/$130) \u00d7 (365/30) \u00d7 100 = 28.1%. If GOOGL drops to $125, you are assigned and buy 100 shares at $130, with an effective cost basis of $127 ($130 \u2212 $3 premium). You own GOOGL at a 9.3% discount to the current price.
Example 2: Monthly Income Rotation
You sell a cash secured put on a stable blue-chip stock every month. Each month, you sell a 30-day put with a strike 5% below the current price and collect approximately 1% of the strike in premium. Over 12 months, you collect approximately 12% in premiums (before taxes and transaction costs). If the stock never drops 5%, you keep all the premiums. If it does, you buy the stock at a 5% discount (minus premium) and either hold or sell covered calls.
Example 3: Cash Secured Put as Stock Entry
You want to buy TSLA at $200, but it is currently at $230. You sell a 60-day put with a $200 strike for $8.00 per share ($800 premium). If TSLA drops to $200 or below, you are assigned and buy 100 shares at $200, with an effective cost of $192 ($200 minus $8 premium). If TSLA stays above $200, you keep the $800 premium and wait for another opportunity. Either way, you are earning income while waiting for your target price.
Tips
Only Sell Puts on Stocks You Want to Own
The most important rule for cash secured puts is to only sell them on stocks you would be happy to own at the strike price. Assignment is not a bad outcome \u2014 it means you bought the stock at your target price, which is exactly what you wanted. If you would be unhappy owning the stock at the strike, choose a different stock or a lower strike.
Factor in the Opportunity Cost of Cash
While the put is open, your cash is locked up as collateral. If you have $20,000 set aside for one contract, that $20,000 is not earning interest elsewhere (or is earning less). Compare the annualized return of the cash secured put to what you could earn in a high-yield savings account or Treasury bill to make sure the extra return justifies the risk.
Watch Out for Earnings Announcements
Selling cash secured puts before earnings can be risky because the stock can move significantly in either direction after the announcement. If you are assigned after earnings, the stock may have dropped significantly below your strike, leaving you with a large unrealized loss. If you want to sell puts through earnings, choose a deeper out-of-the-money strike to provide a larger cushion.
Consider Rolling Down If the Stock Drops
If the stock drops below your strike but has not been assigned yet, you can buy back the current put and sell a new one with a lower strike and/or later expiration. This is called rolling down and out. It reduces your effective purchase price further but also extends the time your cash is locked up. Use this technique only if you still want to own the stock at the new, lower strike.
FAQ
What is a cash secured put?
A cash secured put is an options strategy where you sell a put option and set aside enough cash to buy 100 shares at the strike price if the option is exercised. You receive a premium upfront. If the stock stays above the strike at expiration, the put expires worthless and you keep the premium. If the stock drops below the strike, you are assigned and buy 100 shares at the strike price, which you wanted to own anyway at that price.
When should I use a cash secured put?
Cash secured puts work best when you want to buy a stock at a lower price than its current market value and you are willing to earn income while you wait. It is a disciplined way to accumulate shares at a target price. The strategy also works for pure income generation if you are willing to own the stock if assigned. It is most effective in neutral to slightly bullish markets.
What is the maximum profit on a cash secured put?
The maximum profit is the premium received. This occurs when the stock closes at or above the strike price at expiration and the put expires worthless. You keep the full premium without being obligated to buy the shares. The profit is limited to the premium, which is why this is considered an income strategy rather than a growth strategy.
What is the maximum loss on a cash secured put?
The maximum loss is the strike price minus the premium received. This occurs if the stock goes to zero. In practice, this is unlikely for established stocks, but it illustrates the significant downside risk. The loss is reduced by the premium you collected. If you intended to buy the stock anyway, the effective loss is relative to your target purchase price, not the full strike price.
What is the annualized return on a cash secured put?
The annualized return is the premium return scaled to a yearly timeframe. If you earn a 2% return over 30 days, the annualized return is approximately 2% × (365/30) = 24.3%. This is useful for comparing the income potential of cash secured puts to other income strategies. However, annualized returns assume you can continuously deploy capital at the same rate, which may not be realistic.
Should I use cash secured puts to enter a stock position?
Yes, this is one of the most popular uses. If you want to buy a stock but think it is currently overpriced, you can sell a put at your target price and collect premium while waiting. If the stock drops to your target, you are assigned and buy it at a lower effective cost (strike minus premium). If the stock never drops, you keep the premium and wait for another opportunity. This is a disciplined approach to stock accumulation.
What strike should I choose for a cash secured put?
The strike determines your effective purchase price if assigned. An at-the-money put generates the most premium but requires you to buy the stock at the current price (minus premium). An out-of-the-money put generates less premium but only triggers assignment if the stock drops further. Choose a strike at or below your target purchase price for the stock. The further OTM, the less premium but the more likely the put expires worthless.
What is the difference between a cash secured put and a covered call?
Both strategies involve selling options and owning stock, but from different perspectives. A covered call starts with owning stock and sells upside potential for income. A cash secured put starts with cash and sells downside protection for income. A cash secured put at a given strike is approximately equivalent to a covered call at the same strike (put-call parity), but the cash secured put avoids tying up capital in the stock until assignment.
What happens if the stock drops below the strike?
If the stock drops below the strike at expiration, the put is exercised and you are assigned 100 shares at the strike price. Your effective purchase price is the strike price minus the premium you received. You now own the stock at a cost basis below the strike, which is exactly what you wanted if you set the strike at your target purchase price. The stock may continue to drop, but you have the premium to cushion the loss.
Are cash secured puts suitable for retirement accounts?
Cash secured puts are often used in retirement accounts because they generate income without requiring margin (since you have the cash set aside). However, some brokers have restrictions on selling naked puts in certain account types. Check with your broker. The strategy is popular with value investors who want to earn income while waiting to buy stocks at their target prices.