OptionsMath

Cash-Secured Put Calculator

Cash-secured put profit or loss equals premium received minus the maximum of strike price minus stock price or zero, times 100 shares times number of contracts.

Expiration scenarios

Solution

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Cash-Secured Put Formula

Break-even and effective purchase price equal strike minus premium. Maximum profit is the premium received; downside risk remains substantial if the stock falls.

Worked Examples

Load these examples to compare assignment, premium retention, and severe downside outcomes for cash-secured puts.

ASSIGNMENT PLAN

How do you estimate effective purchase price?

An investor sells 1 $50 put for a $2 premium and is willing to buy the shares. The stock finishes at $48.

  • Cash secured = $50 x 100 x 1 = $5,000.
  • Premium income = $2 x 100 = $200.
  • Assignment loss at $48 = ($50 - $48) x 100 = $200.
  • Net P/L = $200 - $200 = $0.
  • Break-even and effective purchase price = $50 - $2 = $48.

Result: the trade breaks even at expiration and models assignment at an effective $48.00 basis.

Assignment timing and broker treatment can differ before expiration; this is an expiration payoff view.

INCOME TRADE

What if the put expires worthless?

A trader sells 3 $35 puts for $1.40 each while reserving cash for assignment. The stock finishes at $40.

  • Cash secured = $35 x 100 x 3 = $10,500.
  • Premium income = $1.40 x 100 x 3 = $420.
  • Assignment loss = $0 because the stock finishes above the strike.
  • Net P/L = $420.
  • Break-even = $35 - $1.40 = $33.60.

Result: the puts expire worthless and the seller keeps the full $420.00 premium.

The premium is capped income; the seller still carried downside exposure through expiration.

DEEP ASSIGNMENT

What if the stock falls far below the strike?

A trader sells 1 $80 put for $3. The stock finishes at $60 after a sharp decline.

  • Premium income = $3 x 100 = $300.
  • Assignment loss = ($80 - $60) x 100 = $2,000.
  • Net P/L = $300 - $2,000 = -$1,700.
  • Break-even = $80 - $3 = $77.

Result: the cash-secured put loses $1,700.00 at expiration.

Cash-secured puts reduce basis by the premium, but they do not eliminate downside stock risk.

How It Works

A cash-secured put is a short put position backed by enough cash to buy the shares if assignment occurs. The seller collects premium up front and keeps the full premium if the put expires out of the money. If the stock finishes below the strike at expiration, the calculator models assignment by subtracting the stock decline below strike from the premium received.

Example Problem

You sell 1 $50 put for a $2 premium and reserve enough cash to buy 100 shares at $50. The stock finishes at $48 at expiration. What are the profit, break-even price, and cash reserved?

  1. Identify the inputs: strike = $50, premium received = $2 per share, stock price = $48, and contracts = 1.
  2. Cash secured equals $50 x 100 x 1 = $5,000.
  3. Premium income equals $2 x 100 x 1 = $200.
  4. Assignment loss equals max($50 - $48, 0) x 100 = $200.
  5. Net P/L equals $200 premium income - $200 assignment loss = $0.
  6. Break-even and effective purchase price equal $50 - $2 = $48.

The premium is capped income, but downside risk can still be large because the seller may be assigned shares that fall sharply in value.

Key Concepts

Premium income is the maximum profit for a cash-secured put. Break-even is strike minus premium, which is also the effective purchase price if assigned. Cash secured is strike times 100 shares times contracts. The maximum loss occurs if the stock goes to zero, reduced by the premium received.

Applications

  • Estimating income from selling puts on a stock you would be willing to own.
  • Comparing a cash-secured put against placing a lower stock limit order.
  • Planning assignment outcomes and effective purchase price.
  • Sizing short put trades based on cash reserved and downside risk.

Common Mistakes

  • Treating premium income as risk-free because the seller is paid up front.
  • Ignoring the cash required to take assignment.
  • Forgetting that break-even is below the strike by the amount of premium received.
  • Using expiration payoff as if it captured early assignment, margin rules, or changing option value before expiration.

Frequently Asked Questions

What is a cash-secured put?

A cash-secured put is a short put backed by enough cash to buy the underlying shares at the strike price if assignment occurs.

How do I calculate cash-secured put break-even?

Break-even equals strike price minus premium received. If you sell a $50 put for $2, the break-even and effective purchase price are $48.

What is the maximum profit on a cash-secured put?

Maximum profit is the premium received, multiplied by 100 shares and the number of contracts. It occurs when the put expires worthless.

What is the maximum loss on a cash-secured put?

Maximum loss occurs if the stock goes to zero. It equals strike minus premium, multiplied by 100 shares and the number of contracts.

When is the put assigned in this calculator?

This expiration-payoff calculator treats the put as assigned when the stock finishes below the strike at expiration. Real assignment can depend on exercise behavior and broker processing.

Does this calculator include margin interest or commissions?

No. It uses cash-secured expiration payoff only and does not include commissions, fees, interest on cash, taxes, early assignment, or margin treatment.

Reference: Options Industry Council, Cash-Secured Put strategy description and expiration payoff definitions.

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