Cash-secured put: selling options and taking on shares

A cash-secured put is a sold put for which the money for a possible share purchase is set aside. The seller is called the option writer and receives a premium in return. If the price falls below the strike price, the shares must be bought at that price. The profit is limited to the premium. The possible loss is limited, but substantial. The article Options explained simply: calls and puts by example explains what calls and puts are.

How it works in three steps

‘Cash-secured’ means covered: whoever takes on the obligation is also able to meet it. The money for the purchase is ready. This has nothing to do with protection against price losses.

1. Setting aside the cash. The amount needed to buy at the strike price is put aside. The money can be held in a money market investment, meaning a short-term cash investment.
2. Selling the put. The premium goes to the option writer.
3. Expiry or assignment. At expiry, the option writer either keeps only the premium or takes on the shares at the strike price.

The idea behind it can be to acquire shares that were going to be bought anyway at a lower price than today's. The Options Industry Council (OIC), the education body of the options clearing house, lists the strategy under ‘Acquire Stock’.

Capital required: what the cover means

The amount is the strike price times the number of shares in the contract. In the example below (strike price 90, 100 shares), it is CHF 9,000. The number of shares differs from one share to another. The money stays tied up until the put expires or the position is closed.

Brokers require collateral for sold options. The details are set by each provider.

What happens at expiry: keep the premium or take on the shares?

There are two outcomes. If the price at expiry is above the strike price, the put usually expires worthless and the premium is kept. If it is below, assignment follows: the shares are booked into the securities account at the strike price, even if they are worth less on the market.

Who is assigned is a matter of chance. When a buyer exercises the right, for exchange-traded derivatives the system selects an option writer from all open positions in the same option series (options with the same underlying, strike price and expiry). For Nestlé options on Eurex, the shares are delivered two exchange days after exercise.

Assignment can also come before expiry. American options can be exercised at any time during their term, the Nestlé option until 20:00 CET on every trading day (as of 31 October 2026). The OIC considers this risk low, because buying the shares is the goal anyway. Takeovers, spin-offs or special dividends can overturn this expectation, however, and the risk also exists around dividend dates.

European options do not carry this risk: according to Eurex, they offer a defined expiry without the risk of early assignment. The article on the wheel strategy, the cycle of put and call shows what can follow an assignment.

Worked example in CHF with break-even point

The break-even point is the price at which there is neither a profit nor a loss. For a cash-secured put, it is the strike price minus the premium. It is also the cost basis, meaning what the share costs on balance if it is assigned.

In the calculator below, the price at expiry can be moved. For comparison, the other side can be shown: someone who buys the same put.

The results of the example at expiry, per 100 shares:

Compared with buying directly: someone who had bought the share at 90 without a put would be at −CHF 1,000 at a price of 80, the put seller at −CHF 800. Someone who had instead bought it today at 100 would be ahead at a price of 105 with +CHF 500, the put seller at +CHF 200. The premium therefore offsets part of a price fall, but costs part of a price rise.

Cash-secured put and covered call compared

The covered call is the counterpart on the call side. The seller already owns the shares or buys them at the same time, and sells calls on them. A call gives the buyer the right to buy the shares at a fixed price. The article Covered Call Strategy: What's Behind It? shows how the strategy works.

Both strategies have a limited profit and a limited but substantial loss. The payoff profile is similar. The difference lies in the starting position: cash in one case, shares in the other.

The premium follows price, time and expectations

The premium is fixed at the time of sale, but its value changes continuously afterwards. It depends on the share price, the remaining term and the expected fluctuation. The article Option Greeks explained simply explains how each of these factors works. For the option writer, this matters above all if the put is to be bought back before expiry. According to the OIC, rising implied volatility, meaning the fluctuation expected by the market, can make closing the position more expensive.

Risks and limits

Losses are possible with a cash-secured put. They arise from a fall in the share price, not from the option itself.

• Falling price: The price can fall well below the strike price. The strike price then remains the purchase price. In the example, a price of 80 leads to −CHF 800, and a worthless share to −CHF 8,800.
• Limited profit: No more than the premium can be earned. If the price rises, the price gain is forgone.
• Tied-up cash: The amount stays set aside until expiry or until the position is closed.
• A single share: The result depends on this one share.
• Assignment at an awkward time: With American options, early assignment is possible, especially around dividend dates.
• More expensive closing: If the expected fluctuation rises, buying back the put costs more.
• Simplified calculation: The example applies at expiry and leaves out costs, taxes and dividends.

Conclusion

A cash-secured put combines a sold put with the money for a possible share purchase. In the example, it brings in at most CHF 200, the break-even point is 88, and the loss can reach CHF 8,800. The possible loss is limited, but substantial, and the profit remains limited to the premium. Compared with the covered call, the main difference is the starting position, not the shape of profit and loss.