What is the max loss of a Cash Secured Put?

The max loss is (Strike price * 100) - Premium received.

When do I breakeven when utilizing a Cash Secured Put strategy?

The breakeven is defined as Strike Price minus Premium (Credit) received.

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Level

Beginner

Long Call Long Put Cash Secured Put Covered Call Covered Put Protective Call Protective Put Long Strangle

Intermediate

Long Straddle Call Credit Spread Call Debit Spread Collar Put Credit Spread Put Debit Spread Long Call Broken-Wing Butterfly Long Call Butterfly Short Iron Butterfly Short Iron Condor Long Put Butterfly Bearish Broken-Wing Butterfly

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Advanced ** Risk of Ruin

Short Call Short Put Short Straddle Short Strangle Bearish Risk Reversal Call Frontspread Put Frontspread Risk Reversal Synthetic Short Synthetic Long

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Option Strategies Details

Q: What is the typical application of a Cash Secured Put?

The typical applicatio is: 1. Accumulate shares if and only if the share price decreases to the strike price.

Setup

Sell an OTM Put at strike price A while holding 100 * A cash in your account to buy shares if assigned

Typical Application

1. Accumulate shares if and only if the share price decreases to the strike price

Volatility forecast

Down

Price forecast

Neutral

Breakeven

Strike Price minus Premium (Credit) received

PnL Equivalent

Covered Call

Max contract loss

(Strike price * 100) - Premium received

Max position loss

same as Max Contract Loss

Cash Secured Put

Level: Beginner

1 Leg

Credit

Beginner

Other names

CSP

You sell (short) an OTM Put at a strike price where you want to buy (long) 100 shares

Description

A trader who wants to buy 100 shares of stock if and only if the stock price decreases to a certain price can short a Put at that price. The trader receives a credit, called a premium, to sell the Put and has the obligation to buy 100 shares at the strike price.

Suppose stock XYZ is trading at $100. You forecast neutral price changes to XYZ (meaning that price may go up or down a small amount) and you also forecast a decrease in XYZ volatility. You are willing to buy 100 shares of XYZ, but only if the price decreases to $95, and you have $9500 in margin available.

You sell a $95 Put in XYZ to express this view and receive $3 in premium. Your breakeven XYZ price at expiry is $95 (strike price) - $3 (premium received) = $92, but since the time component of your trade plan may not extend all the way to expiration you should be prepared to buy to close at a variety of XYZ prices as the market value of your $95 Put changes.