top of page
Glossary of Terms and Strategies for Options Trading
Complete Options Glossary: Strategies, Terms, Greeks, and Option Selling Techniques. Clear, concise, and suitable for both beginners and advanced traders. Learn to trade options effectively.
Strategy
Beginner, Income
Cash Secured Put
A cash-secured put option writing for the eventual purchase of shares.
Detail
A Cash Secured Put is a conservative income strategy where a trader sells a put option and holds enough cash to purchase the underlying stock at the strike price if assigned.
It is commonly used to either collect premium or to buy stock at a discount if the option is exercised.
This strategy is ideal for investors willing to own the stock and who prefer to be paid while they wait.
When selling a put, the trader agrees to potentially buy the stock at the strike price. With a cash secured put, enough capital is reserved to fulfill that obligation if assigned.
For example, selling 1 put on XYZ at a $90 strike requires $9,000 in buying power (100 shares × $90).
If the stock stays above $90, the trader keeps the premium. If it falls below $90 and the option is assigned, the stock is purchased and the premium lowers the effective purchase price.
The strategy allows traders to generate income from stocks they would like to own anyway – especially during pullbacks or consolidations.
Optimal conditions
Best used in neutral to mildly bullish markets.
Ideal when targeting a stock for long-term ownership but looking for a cheaper entry.
Works well when implied volatility is elevated, increasing the premium received.
Max profit
Limited to the premium received from selling the put.
Max loss
Substantial – if the stock falls to zero, the loss is the strike price minus the premium received (like owning the stock bought at strike).
Risks
The biggest risk is a sharp decline in the stock price after being assigned.
The trader ends up owning the stock at the strike price, which can lead to unrealized or realized losses.
Also carries opportunity cost if the stock rises and the put expires worthless.
Greeks
Delta: Positive – behaves like a bullish position.
Theta: Positive – profits from time decay.
Variations
Wheel strategy (repeatedly selling put and then call after assignment), used on ETFs (e.g. SPY, QQQ).
Usage example
You want to own 100 shares of XYZ, currently trading at $95, but only if the price drops.
You sell 1 put at strike 90 for $3.
If XYZ stays above $90, you keep $300 premium.
If it drops below $90 and you’re assigned, you buy the stock at $90 and your effective cost basis is $87.
DTE
Short-term (7–45 days) for faster income, or longer for a higher premium.
IV (implied volatility)
Higher IV means higher premium, advantageous for entry.
Premium
We directly receive the premium when writing a put option.
Margin
Requires full cash collateral (strike × 100 shares).
Notes
Ideal for long-term investors looking to accumulate positions with lower cost basis.
Can be used to “get paid” while waiting for a pullback.
Not suitable for high-growth or volatile stocks unless the trader accepts assignment risk.
Tags
cash secured put, short put, option
bottom of page