Definition
A cash-secured put is a strategy in which an investor sells a put option and sets aside enough cash to purchase the underlying shares at the strike price should the option be exercised. The cash reserve is what makes the short put secured rather than naked.
The investor collects the put premium up front. In exchange, they accept the obligation to buy the stock at the strike if the buyer chooses to exercise.
Why it matters
How it works
An investor who would happily buy a stock at a price below its current level can sell a put at that strike. If the stock stays above the strike, the put expires worthless and the premium is kept as income. If the stock falls below the strike, the investor is assigned and uses the reserved cash to buy the shares, having reduced the cost basis by the premium. The strategy pairs naturally with covered calls: acquire shares with a cash-secured put, then sell calls against them, a sequence sometimes called the wheel.