A cash-secured put means selling a put option while holding enough cash to buy the shares if you are assigned. You collect premium for agreeing to buy a stock at a price below where it trades today.
Framed properly, it is getting paid to place a limit order.
The mechanics
A stock trades at $52. You would happily own it at $48. Instead of resting a limit order and waiting for free, you sell the $48 put expiring in 30 days for $1.00 — $100 collected today — and set aside $4,800.
Stock stays above $48. The put expires worthless. You keep the $100 and never buy the shares. Sell another put.
Stock falls below $48. You are assigned. You buy 100 shares at $48, having collected $100 — an effective basis of $47.00, which is better than the limit order would have got you.
Both outcomes are acceptable, which is the appeal.
The capital requirement
Strike × 100 × contracts. A $48 strike ties up $4,800 per contract until the position closes or expires.
This is why "cash-secured" is in the name and why the strategy is capital-hungry. Selling a $400 strike put on a mega-cap requires $40,000 sitting idle. Returns should always be judged against that committed capital, not against the premium in isolation — a $100 premium on $4,800 for 30 days is roughly 2.1% monthly, not "free money."
The risk
Effectively identical to owning the stock from the strike, minus the premium.
If the underlying falls to $30 and you sold the $48 put, you are assigned at $48 on shares worth $30. You lost $1,800 and the $100 premium softens it to $1,700. The put did not protect you — it obligated you.
This is the whole reason the standard advice is only sell puts on stocks you genuinely want to own. That is not a platitude. It is the only thing standing between the strategy and a portfolio of names that fell far enough to assign you.
Where it goes wrong
Chasing premium. The fattest put premiums are on the names most likely to collapse. High IV is compensation for risk, not a discount.
Selling into earnings. The premium is rich because a binary event is pending. You are not harvesting theta, you are betting on an announcement.
Strikes you do not mean. Selling a $48 put on a stock you would only want at $40 means you have agreed to a price you do not accept. The premium does not fix that.
Choosing a strike
0.20–0.30 delta is a common range — meaningful premium, moderate assignment odds. Below 0.15 delta the premium usually is not worth the capital lockup.
Structure improves the choice: a strike below max pain, beneath a put-side gamma wall, and outside the lower 1σ band has several unrelated reasons to expect price to hold above it.