Cash-Secured Put
Also called: csp
Selling a put while setting aside the cash to buy the shares if assigned.
A cash-secured put pays you to agree to buy 100 shares at a price you choose. "Cash-secured" means you hold the full purchase price (strike x 100) in cash, so you can always honor the deal. If the stock stays up, you keep the premium. If it falls below your strike, you buy the shares at a discount to where they started, because you keep the premium either way. Only sell puts on stocks you would genuinely want to own.
For example
You sell a $20 put for $60 and set aside $2,000. Above $20 you keep the $60. Below it, you buy 100 shares at an effective cost of $19.40 ($20 minus the $0.60 premium).
Related terms
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