A cash-covered put — usually called a "cash-secured put" or CSP — is a short put option that is fully collateralized by cash in your account. It's the most popular income strategy for traders who want to be paid to buy stock at a price lower than today's market.

This guide walks through the mechanics, the payoff diagram, the real risk, and three live 2026 examples on AAPL, AMZN, and PLTR.

What "Cash-Covered" Actually Means

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When you sell a put, you take on the obligation to buy 100 shares of the underlying at the strike price if the option is exercised. The "cash-covered" part means you keep enough cash in your account to actually buy those shares.

For a $285 strike put on AAPL, "cash-covered" means $28,500 sitting in your settlement fund or money-market sweep.

The opposite — "naked" or "uncovered" — means you sold the put using broker margin instead of cash. Same payoff, much higher risk because the broker can margin-call you if the position moves against you.

The Mechanics in 5 Steps

  • Pick a stock you want to own. This is rule #1. CSPs only work if you're genuinely willing to buy the shares at the strike.
  • Pick a strike below today's price. Most income traders use the 20–30 delta strike, which is roughly the price the market gives a 70–80% chance of staying above.
  • Pick an expiration 30–45 days out. This is the sweet spot for theta decay vs gamma risk.
  • Sell to open the put. You collect the premium immediately.
  • Wait. Either the option expires worthless and you keep the premium, or you get assigned and buy the stock at the strike.

    • The strike, premium, and cash collateral are all decided up front. There are no surprises if you size correctly.

    Payoff Diagram

    | If stock at expiration | What happens | Your P&L | Above the strikePut expires worthless+ Premium At the strikePut expires worthless+ Premium | Below the strike | You are assigned 100 shares at the strike | + Premium − (Strike − Stock price) × 100 |

    The breakeven is Strike − Premium per share. Below that you're losing money on the position.

    The max profit is the premium. The max loss is Strike − Premium per share × 100, assuming the stock goes to zero.

    Example 1: AAPL at $298 (May 14, 2026)

  • Sell the June 20, 2026 $285 put for $4.10
  • Collateral: $28,500 in cash
  • Premium collected: $410
  • Days to expiry: 37

    • Three scenarios:

  • AAPL closes at $290 → put expires worthless, you keep $410. Annualized return: 14.4% on capital.
  • AAPL closes at $285 → put expires worthless, you keep $410. Same return.
  • AAPL closes at $275 → you're assigned 100 shares at $285. Effective cost basis: $285 − $4.10 = $280.90. Unrealized loss: ($280.90 − $275) × 100 = $590. But you now own AAPL $5.90 below the market.

    • In scenario 3, most CSP traders would then sell a covered call against the new shares — the start of the "wheel."

    Example 2: AMZN at $267 (May 14, 2026)

  • Sell the June 20, 2026 $250 put for $2.85
  • Collateral: $25,000 in cash
  • Premium collected: $285
  • Days to expiry: 37

    • Annualized return on the premium alone: 11.2%. The strike is 6.4% below today's price, giving you a comfortable buffer if AMZN drifts down.

    Example 3: PLTR at $133.73 (May 14, 2026)

  • Sell the June 20, 2026 $125 put for $3.20
  • Collateral: $12,500 in cash
  • Premium collected: $320
  • Days to expiry: 37

    • Annualized return on the premium: 25.2% — much higher than AAPL or AMZN because PLTR has higher implied volatility (IV rank ~65). The trade-off: higher chance of assignment if PLTR drops to test the strike.

    This is the classic IV-rank-vs-risk trade. Higher IV gives you more premium but also reflects a market expectation of bigger moves.

    The 4 Real Risks (Most Articles Hide These)

    Risk 1: Opportunity cost on collateral. Your $28,500 of AAPL collateral is locked. Even at 4.5% money-market yield, you only earn $107 of interest in 37 days. If AAPL rips to $320, you miss the entire move while watching $107 of interest accrue.

    Risk 2: Assignment in a downtrend. Your "buy lower" thesis only works if the stock is in a sideways or uptrend. CSPs assigned in a downtrend become bag-holding positions.

    Risk 3: Early assignment around dividends. If a stock goes ex-dividend and the put is ITM, you can be assigned the day before. Rare but happens.

    Risk 4: Gap-down events. Earnings, FDA decisions, geopolitical news — a CSP at $285 can be assigned at $285 even if the stock gapped down to $220 overnight. You eat the full intrinsic move.

    When NOT to Sell a Cash-Covered Put

  • The underlying is in a confirmed downtrend (price below 50- and 200-day moving averages)
  • IV rank is below 20 — premium is too thin to justify the assignment risk
  • You don't actually want to own the stock at the strike
  • There's a known event (earnings, FOMC, court ruling) in the next 7 days

    • Cash-Covered Put vs Cash-Covered Call

    These two terms are commonly confused. There is no such thing as a "cash-covered call" in standard usage. To sell a call against the same cash, you'd need to buy the underlying first — at which point it becomes a covered call, not a cash-covered call.

    Some brokers (mostly Robinhood) do offer "cash-secured call" as a synthetic position where you hold cash equal to the strike + a premium reserve. It's used to limit the loss on a naked call. Not common, not recommended for most traders.

    The Bottom Line

    A cash-covered put is the simplest and most capital-efficient way to get paid for being willing to buy a stock you already wanted to own. It works best on quality companies in uptrends or sideways markets, with IV rank above 30, at 20–30 delta strikes 30–45 days to expiry.

    If you want to see the best CSP strikes for any ticker — ranked by yield on risk, IV rank, and assignment probability — OptionsPilot has a CSP screener that updates live. Open the app, tap a ticker, see the top 5 CSP strikes side by side.