What it is
You sell one put and set aside the money to buy 100 shares at its strike. The buyer pays you a premium for the right to sell you those shares at that price, any time until expiry. If the stock stays above the strike, the put expires and the premium is yours. If it finishes below, you buy the shares at the strike, and the cash you set aside pays for them.
"Cash-secured" is the part that keeps it simple. With the full purchase price held in the account, assignment is a purchase you could always afford rather than a margin event. The same put sold without the cash behind it is the same payoff with borrowed money under it, and that is a different conversation about what a fall can force you to do.
What has to happen for it to make money
The stock has to stay above the break-even by expiry. That is the strike less the premium. Above the strike you keep everything; between the strike and the break-even you keep part of it; below the break-even you are holding shares worth less than you paid.
It does not need the stock to rise. A flat market pays it in full, which is the property people sell puts for. A rally pays it no more than a flat market does, because the most it can ever earn is the premium.
Falling volatility helps before expiry. The put you sold is worth less when the market calms down, so the position can be bought back for less than it was sold for well before the date. Rising volatility does the opposite, and it usually arrives with a falling stock, which is why the two bad things tend to happen at once.
Once it is on
Every day that passes takes a little value out of the put, which is the seller's side of time decay. Most sellers decide in advance whether they will hold to expiry, buy back early once most of the premium is earned, or roll to a later date, because the decision is harder to make well when the stock is moving against you.
If the stock is below the strike near expiry, expect to be assigned. Some people sell puts on stocks they would be content to own at that price, so assignment is the next step of a plan rather than a surprise; selling a covered call against the shares is the usual one.
What goes wrong
A sharp fall. The loss grows with every dollar the stock drops below the break-even, and the premium that capped your gain does not cap your loss. At a price of zero you have paid the strike for nothing, less one premium.
Sizing more than the cash covers. This is how a cash-secured put stops being one. Selling several against money that could only buy one lot of shares turns a fall into a forced sale at the worst moment. The research on this site is mostly about exactly that question: how large a short put position survived the worst months on record.
Pros and cons
- Pro: paid whether the stock rises or sits still.
- Pro: the worst case is known: owning the shares at the strike.
- Pro: no borrowed money when the cash is truly set aside.
- Con: the gain is capped at the premium however far the stock rises.
- Con: the downside is nearly the whole price of the shares.
- Con: the cash sits idle as collateral for the life of the trade.
In Restrike
A short put is tracked as one position from the day it opens, typed in or imported read-only from your broker, since Restrike never places a trade, and scored when it closes. If it is assigned, the shares it delivers are tracked under it, and an expiry alert can email you a few days before the date. A monthly at-the-money put labelled as such is the one position the tool can compare against its thirty-year backtest.