Wheel 101 · Part 2
Step 1: How to sell a cash-secured put
A put is a contract. When you sell one, you're making a promise: "I'll buy 100 shares of this stock at $X if the price drops below $X before a certain date."
For making that promise, someone pays you cash right away. That cash is called premium. It's yours to keep no matter what.
"Cash-secured" means you keep enough cash in your account to actually buy the 100 shares if needed. No borrowing, no surprises.
A simple example
Made-up numbers to keep it easy.
- Stock XYZ trades at $52.
- You sell a put at $50 that expires in 30 days.
- You get paid $1.00 per share = $100 (one contract = 100 shares).
- You keep $5,000 set aside in case you have to buy.
Two things can happen
XYZ stays above $50
The contract expires. You keep the $100 and do it again.
XYZ drops below $50
You buy 100 shares at $50. You still keep the $100. That's called being assigned.
Being assigned isn't failure. It's just Step 2.