CASH SECURED PUT STANDARD OPERATING PROCEDURE

#

CAPITAL RULES

#

ENTRY RULES (ALL MUST BE TRUE)

#

Market Context

• SPY above 50 & 200 MA
• VIX < 25
• No major event in 48h (Fed, CPI, Jobs)

Stock Quality

• Profitable company or broad ETF
• No earnings before expiration
• Would gladly own at strike price

Option Metrics

• DTE: 30-45 days
• Delta: 0.20-0.30
• IV Rank ≥ 30
• Premium ≥ 1% of strike
• Strike below support level
• Open Interest ≥ 500
• Bid-Ask spread ≤ 10%

EXECUTION RULES

#

MANAGEMENT RULES

#

Take Profit

• Close at 50-70% of max profit
• OR close at ≤21 DTE remaining
• Whichever comes FIRST

Roll Rules (ONLY IF ALL TRUE)

• Underlying still high quality
• Roll for NET CREDIT only
• New DTE ≤ 45 days
• New strike still acceptable for ownership
• NOT rolling just to avoid assignment

Assignment Rules

• Accept shares calmly
• Sell covered call ABOVE cost basis only
• Same parameters: 30-45 DTE, Delta 0.20-0.30

HARD NO RULES

#

STOCK UNIVERSE

#

Tier 1 - ETFs (Safest) SPY, QQQ, IWM

Tier 2 - Mega Caps AAPL, MSFT, GOOGL, AMZN, NVDA* *smaller size due to volatility

Tier 3 - Defensive KO, PEP, PG, JNJ, XOM

DAILY CHECKLIST (< 5 Minutes)

#

Morning (Before Open)

1. Check market trend (SPY 50/200 MA)
2. Check VIX level
3. Check economic calendar

During Day (If Trading) 4. [ ] Review watchlist candidates 5. [ ] Verify all entry criteria 6. [ ] Place limit order at mid

End of Day 7. [ ] Review open positions 8. [ ] Check for profit targets hit 9. [ ] Note any approaching 21 DTE

EXPECTED RESULTS

#

On $100k at 1%/month = $12,000/year passive income

THE GOLDEN RULE

#

QUICK REFERENCE LINKS

#

• 📋 Full Entry Checklist - Complete criteria with explanations
• 📊 Watchlist & Workflow Guide - Detailed daily workflow
• 📚 Main CSP Guide - Complete educational guide

Print this. Follow it. Every. Single. Trade.

Last Updated: 2026-01-15

Before We Begin: It Takes Money to Make Money

#

Why Cash Secured Puts Stand Out

#

<span
  class="rounded-md border border-primary-400 px-1 py-[1px] text-xs font-normal text-primary-700 dark:border-primary-600 dark:text-primary-400">

Defined Risk

<span
  class="rounded-md border border-primary-400 px-1 py-[1px] text-xs font-normal text-primary-700 dark:border-primary-600 dark:text-primary-400">

Positive Expectancy

<span
  class="rounded-md border border-primary-400 px-1 py-[1px] text-xs font-normal text-primary-700 dark:border-primary-600 dark:text-primary-400">

Income Regardless

<span
  class="rounded-md border border-primary-400 px-1 py-[1px] text-xs font-normal text-primary-700 dark:border-primary-600 dark:text-primary-400">

Worst Case = Ownership

<span
  class="rounded-md border border-primary-400 px-1 py-[1px] text-xs font-normal text-primary-700 dark:border-primary-600 dark:text-primary-400">

HIGH

<span
  class="rounded-md border border-primary-400 px-1 py-[1px] text-xs font-normal text-primary-700 dark:border-primary-600 dark:text-primary-400">

MEDIUM

<span
  class="rounded-md border border-primary-400 px-1 py-[1px] text-xs font-normal text-primary-700 dark:border-primary-600 dark:text-primary-400">

CAPPED

<span
  class="rounded-md border border-primary-400 px-1 py-[1px] text-xs font-normal text-primary-700 dark:border-primary-600 dark:text-primary-400">

SNEAKY

<span
  class="rounded-md border border-primary-400 px-1 py-[1px] text-xs font-normal text-primary-700 dark:border-primary-600 dark:text-primary-400">

CONTROLLED

How Cash Secured Puts Work

#

graph TD
    A[You Have Cash
Want to Own Stock at Lower Price] --> B{Sell Cash Secured Put}
    B --> C[Collect Premium Upfront
Strike Below Current Price]
    C --> D{At Expiration}
    D -->|Stock > Strike| E[Keep 100% Premium
Repeat Next Month]
    D -->|Stock < Strike| F[Buy Shares at Strike
Effective Cost = Strike - Premium]

    style A fill:#1e3a5f,stroke:#60a5fa,color:#e2e8f0
    style E fill:#0f5132,stroke:#75b798,color:#d1e7dd
    style F fill:#664d03,stroke:#ffc107,color:#fff3cd

The Three Possible Outcomes

#

CSP Portfolio Optimization: The $100k Model

#

This is a battle-tested capital allocation model for running a CSP income portfolio.

Core Principles

#

Capital Allocation Model

#

Position Sizing Rules

#

Never risk more than 5-7% of your total capital per position.

Hard Rules:

• Maximum open positions: 6-10
• Maximum same-sector exposure: 2 positions
• Never exceed 75% deployment: Always keep the buffer

The CSP Universe: What to Trade

#

Not all stocks are created equal for CSPs. Here's a tiered approach based on risk.

  class="text-primary-400 pe-3 flex items-center"

>
<span class="relative block icon"><svg xmlns="http://www.w3.org/2000/svg" viewBox="0 0 384 512"><path fill="currentColor" d="M112.1 454.3c0 6.297 1.816 12.44 5.284 17.69l17.14 25.69c5.25 7.875 17.17 14.28 26.64 14.28h61.67c9.438 0 21.36-6.401 26.61-14.28l17.08-25.68c2.938-4.438 5.348-12.37 5.348-17.7L272 415.1h-160L112.1 454.3zM191.4 .0132C89.44 .3257 16 82.97 16 175.1c0 44.38 16.44 84.84 43.56 115.8c16.53 18.84 42.34 58.23 52.22 91.45c.0313 .25 .0938 .5166 .125 .7823h160.2c.0313-.2656 .0938-.5166 .125-.7823c9.875-33.22 35.69-72.61 52.22-91.45C351.6 260.8 368 220.4 368 175.1C368 78.61 288.9-.2837 191.4 .0132zM192 96.01c-44.13 0-80 35.89-80 79.1C112 184.8 104.8 192 96 192S80 184.8 80 176c0-61.76 50.25-111.1 112-111.1c8.844 0 16 7.159 16 16S200.8 96.01 192 96.01z"/></svg>

  class="dark:text-neutral-300"

><strong>Pro Tip:</strong> SPY/QQQ CSPs are excellent for learning. High liquidity means you can always get in and out.</span>

  class="pe-3 flex items-center" style="color: #ea868f"

>
<span class="relative block icon"><svg xmlns="http://www.w3.org/2000/svg" viewBox="0 0 320 512"><path fill="currentColor" d="M310.6 361.4c12.5 12.5 12.5 32.75 0 45.25C304.4 412.9 296.2 416 288 416s-16.38-3.125-22.62-9.375L160 301.3L54.63 406.6C48.38 412.9 40.19 416 32 416S15.63 412.9 9.375 406.6c-12.5-12.5-12.5-32.75 0-45.25l105.4-105.4L9.375 150.6c-12.5-12.5-12.5-32.75 0-45.25s32.75-12.5 45.25 0L160 210.8l105.4-105.4c12.5-12.5 32.75-12.5 45.25 0s12.5 32.75 0 45.25l-105.4 105.4L310.6 361.4z"/></svg>

  style="color: #f8d7da"

><p><strong>Hard No List:</strong></p>

Time and Strike Optimization

#

Getting the timing and strike right is where the edge lives.

The Optimal Setup

#

Delta Explained Simply

#

graph LR
    A[0.10 Delta] --> B[90% Profit Probability
Low Premium]
    C[0.20 Delta] --> D[80% Profit Probability
Moderate Premium]
    E[0.30 Delta] --> F[70% Profit Probability
Higher Premium]
    G[0.40+ Delta] --> H[60% or Less
Too Aggressive]

    style A fill:#0f5132,stroke:#75b798,color:#d1e7dd
    style C fill:#0f5132,stroke:#75b798,color:#d1e7dd
    style E fill:#664d03,stroke:#ffc107,color:#fff3cd
    style G fill:#842029,stroke:#ea868f,color:#f8d7da

My sweet spot: 0.20 - 0.25 delta. High enough premium to be worth it, low enough probability of assignment to sleep well.

Expected Performance: Realistic Numbers

#

Let's set honest expectations. This is not a get-rich-quick scheme.

Visual: Compound Growth of CSP Income

#

The Mental Framework: You're Running an Insurance Business

#

Lower Risk Variations

#

If you want even less risk, consider these modifications:

Option 1: CSPs on Broad ETFs Only

#

Option 2: The Wheel Strategy (Only If Disciplined)

#

If you get assigned on a CSP, you can "wheel" into covered calls:

graph TD
    A[Sell CSP] -->|Not Assigned| A
    A -->|Assigned| B[Own 100 Shares]
    B --> C[Sell Covered Call
ABOVE Cost Basis Only]
    C -->|Not Called| C
    C -->|Called Away| A

    style A fill:#1e3a5f,stroke:#60a5fa,color:#e2e8f0
    style C fill:#664d03,stroke:#ffc107,color:#fff3cd

What NOT to Believe

#

Related Resources

#

To execute CSPs consistently, you need systems. I've created separate detailed guides:

The Bottom Line

#

Next Steps

#

1. Read the CSP Entry Checklist - Understand every criterion before placing a trade
2. Set up your Watchlists & Workflows - Build your system before you need it
3. Print the 1-Page SOP - Keep it visible every trading day
4. Paper trade for 30 days - Practice without risking real money
5. Start small - Your first real CSP should be on SPY or QQQ

Disclaimer: This is educational content based on personal experience and research. Options trading involves significant risk and is not suitable for all investors. Past performance does not guarantee future results. Always do your own research.

Part 1: Watchlist Structure

#

A well-organized watchlist system eliminates decision fatigue. Set it up once, maintain it weekly.

The 4-Watchlist System

#

Create 4 watchlists in your brokerage platform:

  class="text-primary-400 pe-3 flex items-center"

>
<span class="relative block icon"><svg xmlns="http://www.w3.org/2000/svg" viewBox="0 0 384 512"><path fill="currentColor" d="M112.1 454.3c0 6.297 1.816 12.44 5.284 17.69l17.14 25.69c5.25 7.875 17.17 14.28 26.64 14.28h61.67c9.438 0 21.36-6.401 26.61-14.28l17.08-25.68c2.938-4.438 5.348-12.37 5.348-17.7L272 415.1h-160L112.1 454.3zM191.4 .0132C89.44 .3257 16 82.97 16 175.1c0 44.38 16.44 84.84 43.56 115.8c16.53 18.84 42.34 58.23 52.22 91.45c.0313 .25 .0938 .5166 .125 .7823h160.2c.0313-.2656 .0938-.5166 .125-.7823c9.875-33.22 35.69-72.61 52.22-91.45C351.6 260.8 368 220.4 368 175.1C368 78.61 288.9-.2837 191.4 .0132zM192 96.01c-44.13 0-80 35.89-80 79.1C112 184.8 104.8 192 96 192S80 184.8 80 176c0-61.76 50.25-111.1 112-111.1c8.844 0 16 7.159 16 16S200.8 96.01 192 96.01z"/></svg>

  class="dark:text-neutral-300"

><strong>Use for:</strong> Market regime assessment + steady base premium. These ETFs are always tradeable, always liquid.</span>

  class="pe-3 flex items-center" style="color: #ffc107"

>
<span class="relative block icon"><svg xmlns="http://www.w3.org/2000/svg" viewBox="0 0 512 512"><path fill="currentColor" d="M506.3 417l-213.3-364c-16.33-28-57.54-28-73.98 0l-213.2 364C-10.59 444.9 9.849 480 42.74 480h426.6C502.1 480 522.6 445 506.3 417zM232 168c0-13.25 10.75-24 24-24S280 154.8 280 168v128c0 13.25-10.75 24-23.1 24S232 309.3 232 296V168zM256 416c-17.36 0-31.44-14.08-31.44-31.44c0-17.36 14.07-31.44 31.44-31.44s31.44 14.08 31.44 31.44C287.4 401.9 273.4 416 256 416z"/></svg>

  style="color: #fff3cd"

><strong>Note on NVDA:</strong> Higher volatility means higher premiums but also higher risk. Use 50% normal position size.</span>

  class="pe-3 flex items-center" style="color: #75b798"

>
<span class="relative block icon"><svg xmlns="http://www.w3.org/2000/svg" viewBox="0 0 512 512">

  style="color: #d1e7dd"

><strong>Strategy:</strong> When market is uncertain, shift allocation toward defensive names. Lower premiums but lower stress.</span>

  class="pe-3 flex items-center" style="color: #60a5fa"

>

  style="color: #e2e8f0"

><strong>Important:</strong> Remove symbols immediately after you close a position. This keeps the list clean and actionable.</span>

Watchlist Setup Checklist

#

Use this when initially setting up your watchlists:

WATCHLIST SETUP CHECKLIST
═══════════════════════════════════════════════════

☐ Create Watchlist 1: CSP Core ETFs
   → Add: SPY, QQQ, IWM
   → Label: "CSP - Core"

☐ Create Watchlist 2: CSP Mega Caps
   → Add: AAPL, MSFT, GOOGL, AMZN, NVDA
   → Label: "CSP - Mega"

☐ Create Watchlist 3: CSP Defensive
   → Add: KO, PEP, PG, JNJ, XOM
   → Label: "CSP - Defensive"

☐ Create Watchlist 4: Active Candidates
   → Start empty
   → Label: "CSP - Active"

☐ Add columns to each watchlist:
   → Last Price
   → % Change
   → 52-Week High
   → 52-Week Low
   → IV Rank (if available)

═══════════════════════════════════════════════════

Part 2: Option Chain Workflow

#

This is your step-by-step process for selecting and executing CSP trades. Follow it exactly.

Daily Market Check (2 Minutes)

#

Before opening any option chains, assess the market environment.

graph TD
    A[Open SPY Chart] --> B{Above 50-day MA?}
    B -->|YES| C{Above 200-day MA?}
    B -->|NO| D[CAUTION: Reduce size 50%
or skip today]
    C -->|YES| E{VIX < 25?}
    C -->|NO| F[WARNING: Defensive mode
ETFs only, small size]
    E -->|YES| G{Any major events today?}
    E -->|NO| H[ELEVATED RISK
Skip or minimal size]
    G -->|NO| I[GREEN LIGHT
Proceed to stock selection]
    G -->|YES| J[WAIT
Trade after event passes]

    style I fill:#0f5132,stroke:#75b798,color:#d1e7dd
    style D fill:#664d03,stroke:#ffc107,color:#fff3cd
    style F fill:#664d03,stroke:#ffc107,color:#fff3cd
    style H fill:#842029,stroke:#ea868f,color:#f8d7da

Quick Market Check Template

#

DAILY MARKET CHECK - Date: ___________

SPY Analysis:
☐ Above 50 MA?    YES / NO
☐ Above 200 MA?   YES / NO

VIX Level: _____ (Target: < 25)

Economic Calendar:
☐ Fed meeting?       YES / NO
☐ CPI release?       YES / NO
☐ Jobs report?       YES / NO
☐ Major earnings?    YES / NO

DECISION: ☐ TRADE / ☐ REDUCED SIZE / ☐ SKIP

Stock Selection (3 Minutes)

#

From your Active Candidates watchlist (Watchlist 4):

Support Level Identification

#

graph LR
    A[Open Daily Chart] --> B[Look for horizontal zones
where price bounced]
    B --> C[Mark 2-3 support levels]
    C --> D[Choose strike BELOW
the nearest support]
    D --> E[This is your target zone]

    style E fill:#0f5132,stroke:#75b798,color:#d1e7dd

Example:

• AAPL at $185
• Support 1: $180 (recent bounce)
• Support 2: $175 (major support zone)
• Support 3: $170 (52-week reference)
• Target strike zone: $170-$175

Option Chain Analysis (5 Minutes)

#

Step 1: Open Option Chain

#

Navigate to the stock's option chain and configure:

Step 2: Filter by Delta

#

Step 3: Apply Selection Criteria

#

For each strike in your delta range, check:

Premium Calculation Quick Reference

#

Premium % = (Mid Price / Strike) × 100

Target: ≥ 1.0% per month

Examples:
$170 strike, $1.70 mid = 1.00% ✅
$170 strike, $2.50 mid = 1.47% ✅
$170 strike, $1.20 mid = 0.71% ❌ (too low)

Step 4: Make Your Selection

#

Order Execution (2 Minutes)

#

Once you've selected your strike, execute with discipline.

Order Entry Checklist

#

ORDER EXECUTION CHECKLIST
═══════════════════════════════════════════════════

Position Details:
☐ Underlying: _______________
☐ Strike: _______________
☐ Expiration: _______________
☐ DTE: _____ days

Order Settings:
☐ Action: SELL TO OPEN
☐ Quantity: _____ contract(s)
☐ Order Type: LIMIT
☐ Limit Price: _____ (use mid-price)
☐ Duration: Day

Cash Required:
☐ Strike × 100 × Contracts = $___________
☐ This is ≤ 7% of total capital? YES / NO
☐ Cash buffer still ≥ 20%? YES / NO

Final Confirmation:
☐ All checklist items passed
☐ Review order preview
☐ SUBMIT ORDER

═══════════════════════════════════════════════════

Limit Order Strategy

#

Part 3: Position Management Workflow

#

Daily management takes less than 5 minutes when you have a system.

Daily Review Process

#

graph TD
    A[Open Positions Tab
Morning Check] --> B{Any position at
50%+ profit?}
    B -->|YES| C[Close position
Take profit]
    B -->|NO| D{Any position at
≤ 21 DTE?}
    D -->|YES| E[Close position
regardless of P/L]
    D -->|NO| F{Any position
tested?}
    F -->|YES| G[Monitor closely
Check fundamentals]
    F -->|NO| H[No action needed
Continue holding]

    style C fill:#0f5132,stroke:#75b798,color:#d1e7dd
    style E fill:#664d03,stroke:#ffc107,color:#fff3cd
    style H fill:#1e3a5f,stroke:#60a5fa,color:#e2e8f0

Position Review Template

#

DAILY POSITION REVIEW - Date: ___________

For each open position, record:

Position 1: _______________
  Current Profit %: _____%
  DTE Remaining: _____ days
  Action: ☐ HOLD / ☐ CLOSE / ☐ MONITOR

Position 2: _______________
  Current Profit %: _____%
  DTE Remaining: _____ days
  Action: ☐ HOLD / ☐ CLOSE / ☐ MONITOR

Position 3: _______________
  Current Profit %: _____%
  DTE Remaining: _____ days
  Action: ☐ HOLD / ☐ CLOSE / ☐ MONITOR

Total Open Positions: _____
Total Capital Deployed: $___________
Cash Buffer: $___________

Notes:
_________________________________
_________________________________

Profit Taking Rules

#

  class="pe-3 flex items-center" style="color: #75b798"

>

  style="color: #d1e7dd"

><p><strong>Close the position when EITHER condition is met:</strong></p>

Original Trade:
- Sold $170 put for $2.50 premium
- Max profit: $250

Day 15 (30 DTE remaining):
- Put now worth $1.00
- Profit: $1.50 ($250 - $100 to close)
- Profit %: 60%

Action: CLOSE POSITION ✅
- Capture $150 profit
- Redeploy capital to new trade
- Remove remaining risk

  class="pe-3 flex items-center" style="color: #ffc107"

>

  style="color: #fff3cd"

><p><strong>Roll ONLY IF all conditions are met:</strong></p>

Step 1: Calculate current position value
  - Original credit: $2.50
  - Current cost to close: $3.00
  - Current loss: -$0.50

Step 2: Find new position
  - Same underlying
  - 30-45 DTE out
  - Same or lower strike
  - Premium: $3.80

Step 3: Execute as single order (if possible)
  - Buy to close current: $3.00
  - Sell to open new: $3.80
  - Net credit: $0.80

Step 4: Verify
  - Net credit received? YES ✅
  - New strike acceptable? YES ✅
  - Proceed with roll

  class="pe-3 flex items-center" style="color: #ea868f"

>
<span class="relative block icon"><svg xmlns="http://www.w3.org/2000/svg" viewBox="0 0 320 512"><path fill="currentColor" d="M310.6 361.4c12.5 12.5 12.5 32.75 0 45.25C304.4 412.9 296.2 416 288 416s-16.38-3.125-22.62-9.375L160 301.3L54.63 406.6C48.38 412.9 40.19 416 32 416S15.63 412.9 9.375 406.6c-12.5-12.5-12.5-32.75 0-45.25l105.4-105.4L9.375 150.6c-12.5-12.5-12.5-32.75 0-45.25s32.75-12.5 45.25 0L160 210.8l105.4-105.4c12.5-12.5 32.75-12.5 45.25 0s12.5 32.75 0 45.25l-105.4 105.4L310.6 361.4z"/></svg>

  style="color: #f8d7da"

><p><strong>Never Roll For:</strong></p>

  class="pe-3 flex items-center" style="color: #6ea8fe"

>

  style="color: #cfe2ff"

><p><strong>Assignment Response Process:</strong></p>

Assignment Example:
- Assigned 100 shares AAPL at $170 strike
- Premium received: $2.50
- Cost basis: $167.50

Covered Call Setup:
- Current price: $165
- Sell $170 call (above $167.50 cost basis)
- 30 DTE
- Delta: 0.25
- Premium: $2.00

Outcome if called away:
- Sell at $170
- Plus $2.00 CC premium
- Total: $172.00
- Profit: $172.00 - $167.50 = $4.50/share

Weekly Workflow Summary

#

Here's your complete weekly schedule:

Trade Log Template

#

Keep a log of every trade. This is how you improve.

CSP TRADE LOG
═══════════════════════════════════════════════════════════════

Entry Date: ___________
Underlying: ___________
Strike: $___________
Expiration: ___________
DTE at Entry: _____ days
Delta at Entry: _____
Premium Received: $___________
IV Rank at Entry: _____%

Exit Date: ___________
Days Held: _____
Reason for Exit: ☐ Profit target / ☐ 21 DTE / ☐ Roll / ☐ Assignment
Profit/Loss: $___________
% of Max Profit: _____%

Notes:
_____________________________________________
_____________________________________________

═══════════════════════════════════════════════════════════════

Common Workflow Mistakes

#

Final Workflow Reminder

#

Disclaimer: This is educational content. Options trading involves significant risk. Always do your own research.

Entry Checklist (All Must Be YES)

#

This is a pre-flight checklist. Just like pilots don't skip steps before takeoff, you don't skip steps before placing a trade.

  class="pe-3 flex items-center" style="color: #ffc107"

>
<span class="relative block icon"><svg xmlns="http://www.w3.org/2000/svg" viewBox="0 0 512 512"><path fill="currentColor" d="M506.3 417l-213.3-364c-16.33-28-57.54-28-73.98 0l-213.2 364C-10.59 444.9 9.849 480 42.74 480h426.6C502.1 480 522.6 445 506.3 417zM232 168c0-13.25 10.75-24 24-24S280 154.8 280 168v128c0 13.25-10.75 24-23.1 24S232 309.3 232 296V168zM256 416c-17.36 0-31.44-14.08-31.44-31.44c0-17.36 14.07-31.44 31.44-31.44s31.44 14.08 31.44 31.44C287.4 401.9 273.4 416 256 416z"/></svg>

  style="color: #fff3cd"

><p><strong>If any market check fails:</strong></p>

1. Open SPY chart
2. Is price above 50 MA? → YES/NO
3. Is price above 200 MA? → YES/NO
4. Check VIX level → ____
5. Check economic calendar → Any major events?

All YES and VIX < 25? → Proceed to stock selection
Any NO? → Reduce size or skip

  class="pe-3 flex items-center" style="color: #ea868f"

>
<span class="relative block icon"><svg xmlns="http://www.w3.org/2000/svg" viewBox="0 0 320 512"><path fill="currentColor" d="M310.6 361.4c12.5 12.5 12.5 32.75 0 45.25C304.4 412.9 296.2 416 288 416s-16.38-3.125-22.62-9.375L160 301.3L54.63 406.6C48.38 412.9 40.19 416 32 416S15.63 412.9 9.375 406.6c-12.5-12.5-12.5-32.75 0-45.25l105.4-105.4L9.375 150.6c-12.5-12.5-12.5-32.75 0-45.25s32.75-12.5 45.25 0L160 210.8l105.4-105.4c12.5-12.5 32.75-12.5 45.25 0s12.5 32.75 0 45.25l-105.4 105.4L310.6 361.4z"/></svg>

  style="color: #f8d7da"

><p><strong>Automatic Disqualification:</strong></p>

Premium % = (Premium per Share / Strike Price) × 100

Example:
Strike: $170
Premium: $2.50
Calculation: ($2.50 / $170) × 100 = 1.47%

Target: ≥ 1% per month
This trade: 1.47% ✅ PASS

graph TD
    A[Delta Selection] --> B{Your Risk Tolerance?}
    B -->|Conservative| C[0.15 - 0.20 Delta
85% win rate
Lower premium]
    B -->|Balanced| D[0.20 - 0.25 Delta
80% win rate
Moderate premium]
    B -->|Moderate| E[0.25 - 0.30 Delta
75% win rate
Higher premium]
    B -->|Aggressive| F[0.30+ Delta
70% or less
NOT RECOMMENDED]

    style C fill:#0f5132,stroke:#75b798,color:#d1e7dd
    style D fill:#0f5132,stroke:#75b798,color:#d1e7dd
    style E fill:#664d03,stroke:#ffc107,color:#fff3cd
    style F fill:#842029,stroke:#ea868f,color:#f8d7da

Total Capital: $100,000
Maximum per position (7%): $7,000

For a $170 strike put:
Cash required: $17,000 (1 contract = 100 shares × $170)
Exceeds 7%? YES → Consider lower-priced underlying

For a $70 strike put:
Cash required: $7,000 (1 contract = 100 shares × $70)
Exceeds 7%? NO → Position size acceptable ✅

  class="pe-3 flex items-center" style="color: #ea868f"

>
<span class="relative block icon"><svg xmlns="http://www.w3.org/2000/svg" viewBox="0 0 512 512"><path fill="currentColor" d="M506.3 417l-213.3-364c-16.33-28-57.54-28-73.98 0l-213.2 364C-10.59 444.9 9.849 480 42.74 480h426.6C502.1 480 522.6 445 506.3 417zM232 168c0-13.25 10.75-24 24-24S280 154.8 280 168v128c0 13.25-10.75 24-23.1 24S232 309.3 232 296V168zM256 416c-17.36 0-31.44-14.08-31.44-31.44c0-17.36 14.07-31.44 31.44-31.44s31.44 14.08 31.44 31.44C287.4 401.9 273.4 416 256 416z"/></svg>

  style="color: #f8d7da"

><strong>Stop!</strong> In this example, adding another Tech position would violate the 2-position sector rule. Next position must be from a different sector.</span>

Strike Selection Rule

#

When multiple strikes meet your criteria, use this decision framework:

Strike Selection Example

#

Stock: AAPL at $185 Support level: $175

Selection: $170 strike - Meets all criteria with comfortable margin of safety.

Position Management Rules

#

Once you're in a trade, follow these rules for managing it.

  class="pe-3 flex items-center" style="color: #75b798"

>

  style="color: #d1e7dd"

><p><strong>Close the position when EITHER condition is met:</strong></p>

  class="pe-3 flex items-center" style="color: #ffc107"

>

  style="color: #fff3cd"

><p><strong>Roll ONLY IF all conditions are met:</strong></p>

  class="pe-3 flex items-center" style="color: #ea868f"

>
<span class="relative block icon"><svg xmlns="http://www.w3.org/2000/svg" viewBox="0 0 320 512"><path fill="currentColor" d="M310.6 361.4c12.5 12.5 12.5 32.75 0 45.25C304.4 412.9 296.2 416 288 416s-16.38-3.125-22.62-9.375L160 301.3L54.63 406.6C48.38 412.9 40.19 416 32 416S15.63 412.9 9.375 406.6c-12.5-12.5-12.5-32.75 0-45.25l105.4-105.4L9.375 150.6c-12.5-12.5-12.5-32.75 0-45.25s32.75-12.5 45.25 0L160 210.8l105.4-105.4c12.5-12.5 32.75-12.5 45.25 0s12.5 32.75 0 45.25l-105.4 105.4L310.6 361.4z"/></svg>

  style="color: #f8d7da"

><p><strong>Never roll in these situations:</strong></p>

Original: AAPL $170P, 7 DTE, -$0.50 loss
Roll to: AAPL $165P, 35 DTE
Net credit: +$1.20
New strike acceptable? YES
Fundamentals changed? NO
✅ ACCEPTABLE ROLL

Original: XYZ $50P, 7 DTE, -$3.00 loss
Roll to: XYZ $45P, 35 DTE
Net credit: +$0.50
New strike acceptable? BARELY
Fundamentals changed? YES (earnings miss)
❌ DON'T ROLL - Accept assignment or close

  class="pe-3 flex items-center" style="color: #6ea8fe"

>

  style="color: #cfe2ff"

><p><strong>When Assigned:</strong></p>

graph TD
    A[You Got Assigned] --> B{Fundamental thesis intact?}
    B -->|YES| C{Want to continue holding?}
    B -->|NO| D[Sell shares immediately
Accept the loss]
    C -->|YES| E[Hold shares
Consider covered calls]
    C -->|NO| F[Sell shares
Move to next opportunity]
    E --> G{Sell covered calls?}
    G -->|YES| H[Strike ABOVE cost basis only
30-45 DTE, 0.20-0.30 delta]
    G -->|NO| I[Continue holding
Wait for recovery]

    style D fill:#842029,stroke:#ea868f,color:#f8d7da
    style H fill:#0f5132,stroke:#75b798,color:#d1e7dd

  class="pe-3 flex items-center" style="color: #ffc107"

>
<span class="relative block icon"><svg xmlns="http://www.w3.org/2000/svg" viewBox="0 0 512 512"><path fill="currentColor" d="M506.3 417l-213.3-364c-16.33-28-57.54-28-73.98 0l-213.2 364C-10.59 444.9 9.849 480 42.74 480h426.6C502.1 480 522.6 445 506.3 417zM232 168c0-13.25 10.75-24 24-24S280 154.8 280 168v128c0 13.25-10.75 24-23.1 24S232 309.3 232 296V168zM256 416c-17.36 0-31.44-14.08-31.44-31.44c0-17.36 14.07-31.44 31.44-31.44s31.44 14.08 31.44 31.44C287.4 401.9 273.4 416 256 416z"/></svg>

  style="color: #fff3cd"

><strong>Critical:</strong> Selling covered calls below your cost basis locks in a loss if called away. Only do this if you've decided to exit the position anyway.</span>

Defensive Rules

#

When the market or your position turns against you, follow these rules.

If Stock Drops Hard

#

When to Take a Loss

#

Sometimes cutting losses is the right move. Here's when:

Hard NO Rules

#

These are absolute rules. Breaking them leads to blow-ups.

Pre-Trade Checklist (Printable Summary)

#

Copy this checklist and use it for every trade:

═══════════════════════════════════════════════════════════════
                    CSP ENTRY CHECKLIST
═══════════════════════════════════════════════════════════════

MARKET CONTEXT (All must be YES)
☐ VIX < 25
☐ Index above 50 MA
☐ Index above 200 MA
☐ No major event in 48h

STOCK QUALITY (All must be YES)
☐ Profitable company / ETF
☐ No earnings before expiration
☐ Would gladly own at strike
☐ Clear support below strike

OPTION METRICS (All must be YES)
☐ DTE: 30-45 days
☐ Delta: 0.20-0.30
☐ IV Rank ≥ 30
☐ Premium ≥ 1% of strike
☐ Open Interest ≥ 500
☐ Bid-Ask spread ≤ 10%

CAPITAL RULES (All must be YES)
☐ Position ≤ 7% of capital
☐ Sector exposure ≤ 2 positions
☐ Cash buffer ≥ 20% after trade

═══════════════════════════════════════════════════════════════
ALL BOXES CHECKED? → EXECUTE TRADE
ANY BOX UNCHECKED? → DO NOT TRADE
═══════════════════════════════════════════════════════════════

Trade Details:
Underlying: _______________
Strike: _______________
Expiration: _______________
Premium: _______________
Delta: _______________
Date: _______________

═══════════════════════════════════════════════════════════════

Final Word

#

Disclaimer: This is educational content. Options trading involves significant risk. Past performance does not guarantee future results. Always do your own research.

Think of it as getting paid to place a limit buy order. You're telling the market: "I'll buy this stock at $X price, and you'll pay me for making that commitment."

The Mechanics

#

Components of a Cash Secured Put

#

1. Cash Reserve: You hold enough cash to buy 100 shares at the strike price
2. Short Put Option: You sell 1 put option contract (covers 100 shares)
3. Strike Price: The price at which you agree to buy the shares
4. Premium: The income you receive for selling the put option
5. Expiration Date: When the option contract expires

Visual Representation

#

graph TD
    A[You Have $5,000 Cash
Want to Buy Stock at $50] --> B{Sell 1 Put Option}
    B --> C[Strike Price: $50
Premium Received: $1.50/share
Expiration: 30 days]
    C --> D{At Expiration}
    D -->|Stock > $50| E[Keep Cash
Keep Premium
Total Profit: $150]
    D -->|Stock < $50| F[Buy 100 Shares at $50
Effective Cost: $48.50/share
You own stock you wanted!]

Practical Example

#

Let's walk through a real-world scenario:

Setup

#

• Stock: Apple (AAPL)
• Current Price: $180 per share
• Your Target Buy Price: $170
• Cash Reserved: $17,000 (enough to buy 100 shares at $170)

The Trade

#

You sell 1 put option:

• Strike Price: $170
• Premium: $2.50 per share
• Expiration: 30 days
• Premium Received: $250 (100 shares × $2.50)

Possible Outcomes

#

Day 0:  Stock at $180, Sell put for $2.50/share
Day 30: Stock at $175 (above strike)

Result:
- Keep your $17,000 cash
- Keep the $250 premium
- Annualized return on cash: ~17.6% ($250/$17,000 × 12 months)
- Can sell another put option next month

Day 0:  Stock at $180, Sell put for $2.50/share
Day 30: Stock at $160 (below strike)

Result:
- You buy 100 shares at $170 (the strike price)
- Premium kept: $250
- Effective cost per share: $167.50 ($170 - $2.50 premium)
- Current value: $16,000 (100 × $160)
- Paper loss: $750 (but you own stock you wanted!)

Cash Secured Put Payoff Diagram

#

Visual P&L Diagram

#

When to Use Cash Secured Puts

#

How to Choose the Strike Price

#

Using Delta as a Guide

#

Delta measures the probability of an option being in-the-money at expiration. For put selling:

Strike Price Selection Strategy

#

graph LR
    A[Current Stock Price] --> B{Your Goal?}
    B -->|Maximum Premium| C[At-the-Money Strike
Higher risk of assignment]
    B -->|Balanced| D[5-10% Below Current
Delta around -0.25]
    B -->|Conservative| E[15-20% Below Current
Delta around -0.15]

    classDef aggressive fill:#ef4444,stroke:#dc2626,color:#fff
    classDef balanced fill:#f59e0b,stroke:#d97706,color:#fff
    classDef conservative fill:#22c55e,stroke:#16a34a,color:#fff

    class C aggressive
    class D balanced
    class E conservative

Risk/Reward Profile

#

Maximum Gain

#

Max Profit = Premium Received

Example: $250 (the premium you collected)

Your profit is capped at the premium - you can't make more even if the stock moons.

Maximum Loss

#

Max Loss = (Strike Price × 100) - Premium Received

Example: ($170 × 100) - $250 = $16,750

This is the same risk as owning the stock minus the premium. Only sell puts on stocks you actually want to own!

Breakeven Point

#

Breakeven = Strike Price - Premium per Share

Example: $170 - $2.50 = $167.50

Visual Comparison: Cash Secured Put vs Buying Stock

#

graph LR
    A[Want to Own Stock] --> B[Buy Stock Now]
    A --> C[Sell Cash Secured Put]

    B --> D[Pay Full Price
Immediate Ownership
No Premium Income]

    C --> E[Get Paid to Wait
Buy at Discount if Assigned
May Not Get Shares]

    classDef immediate fill:#3b82f6,stroke:#2563eb,color:#fff
    classDef strategic fill:#f59e0b,stroke:#d97706,color:#fff

    class B immediate
    class C strategic

Advanced Considerations

#

Rolling the Put

#

If the stock is approaching your strike and you don't want to be assigned yet, you can "roll" the put:

Step 1: Buy back the current put (close position)
Step 2: Sell a new put with later expiration or lower strike

Example:

• Current: $170 strike expiring in 5 days, stock at $172
• Action: Buy back for $1.50, sell $165 strike 30 days out for $3
• Net credit: $1.50 per share ($150 total)

The Wheel Strategy

#

Cash secured puts are often the entry point for the popular "Wheel Strategy":

graph TD
    A[Sell Cash Secured Put] -->|Not Assigned| A
    A -->|Assigned - You Own Shares| B[Sell Covered Call]
    B -->|Not Called Away| B
    B -->|Called Away - Shares Sold| A

Real-World Performance

#

Monthly Income Example

#

Cash Reserve: $50,000 across 5 stocks ($10,000 each)

Assumptions: All puts expired worthless (stocks stayed above strikes)

Key Takeaways

#

1. Income While Waiting: Get paid to wait for stocks to reach your target buy price
2. Limited Profit: Your max gain is the premium received
3. Significant Risk: You could be forced to buy shares at the strike price even if the stock drops much lower
4. Best for Stocks You Want: Only sell puts on companies you'd happily own
5. Works with Covered Calls: Part of the popular "Wheel Strategy" for recurring income

Common Mistakes to Avoid

#

Conclusion

#

Cash secured puts are a smart way to generate income while waiting to buy stocks you already want to own. They work best when you:

• Have a list of quality stocks you'd love to own at lower prices
• Want to generate income from idle cash in your brokerage account
• Accept that you might be assigned and will own the shares
• Understand that your profit is limited to the premium received

Remember: Only sell puts on stocks you actually want to buy. If you get assigned, you should be excited to own the shares, not disappointed!

Disclaimer: This is educational content only. Options trading involves risk and is not suitable for all investors. Do your research!