This article maps all four strategies on a single decision tree so you never use the wrong one again.
The Four Strategies in One Sentence Each
Most retail traders confuse "covered put" with "cash-secured put." They are not the same. A covered put requires you to be short the stock, which most retail accounts don't even permit without portfolio margin.
The Decision Tree
Start with your view on the underlying:
``` What do I think happens to the stock? | +-------------------+--------------------+ | | | Bullish/flat Neutral Bearish | | | v v v Do I own shares? Same as bullish Can I short stock? | | +---+----+ +----+----+ | | | | Yes No Yes No | | | | v v v v Covered CSP Covered Bear put call (or naked put) put spread / OTM put ```
That covers the four pure strategies. Most beginners should ignore covered puts entirely — the short-stock leg has unlimited risk if the stock rallies.
Payoff Diagrams, Side by Side
| Strategy | Max profit | Max loss | Best if stock... |
Notice that the covered call and CSP have identical max profit and max loss profiles when you assume the CSP seller would have bought the stock at the strike anyway. They are synthetically equivalent.
The naked put has the same payoff as the CSP — but uses margin, so the broker can margin-call you if the position moves against you before assignment.
The covered put is the only true "bearish" strategy of the four. It's also the only one with theoretically unlimited risk, because a stock you're short can go to infinity.
Real-Number Examples
Let's use AAPL at $298 (May 14, 2026 close) and the June 20, 2026 expiry (37 DTE).
Covered call — Sell the $310 call for $4.20:
Cash-secured put — Sell the $285 put for $4.10:
Note that the CSP collects almost the same premium for almost the same risk. The covered call earns more in the max-profit case because you also capture $12 of stock appreciation up to the strike.
Naked put — Same as CSP but with $5,000 margin requirement instead of $28,500 cash collateral. The 8% return on $410 / $5,000 looks like 60% annualized, but you're using 5.7× leverage to get there.
Covered put — Short 100 AAPL at $298, sell the $285 put for $4.10:
The covered put earns more than the CSP at max profit, but it has unlimited upside risk. This is why almost no retail platform offers it without portfolio margin.
When to Use Each
Use a covered call when:
Use a cash-secured put when:
Use a naked put when:
Use a covered put when:
Common Mistakes
Mistake 1: Confusing "covered put" with "cash-secured put." They are completely different strategies. The covered put is bearish and uses short stock. The CSP is neutral-to-bullish and uses cash.
Mistake 2: Selling naked puts to "save capital." The leverage cuts both ways. A 10% drop in the underlying can wipe out 50%+ of your margin equity.
Mistake 3: Treating covered calls and CSPs as interchangeable in a taxable account. They have different tax treatments on assignment — see our Cash-Secured Put vs Covered Call deep dive for the math.
Mistake 4: Selling premium during downtrends. All four strategies have downside risk. Selling premium into a falling market is the most common way new traders blow up.
The Bottom Line
Of the four strategies, covered calls and cash-secured puts are the two retail traders should know cold. They're the safest, most tax-efficient ways to generate option premium against a stock you want to own.
Covered puts and naked puts add leverage and bearish exposure that most retail accounts shouldn't use until they've done 100+ cycles of the simpler strategies first.
If you want a screener that ranks all the best covered-call and CSP strikes for any ticker — by yield-on-risk, IV rank, and probability of assignment — OptionsPilot has both built in. Tap a ticker, see the top 5 strikes for each strategy, and pick the one that matches your view.
