Cash Secured Put: Your Go To Option Strategy

A put contract gives the buyer the right to sell 100 shares of the underlying equity at the given strike price. The contract can be exercised at any time between when it was purchased and the contract expiration date.

Writing (or selling) a put contract is referred to a Cash Secured Put because in the event of assignment (the option holder/buyer exercises the option) you'll need to buy 100 shares of the equity at the strike price of the option.

Bullish

Selling put contracts is a bullish options strategy in that the position benefits from a rise in price of the underlying equity. If the price of the equity is above the strike of the option on expiration, then the option expires worthless and the seller keeps the option premium.

Option Premium

This is the amount of money paid by the buyer for the rights given by the option contract.

Why are put contracts useful?

Put contracts allow option buyers to hedge positions on stock during times when they think the stock price will fall. This allows them to offset losses without selling stock, which could carry other consequences such as capital gains tax, loss of potential rise in stock price and the loss of dividends.

For put sellers, puts are a useful way to accumulate shares of a stock at a lower price than the market is offering. If you don't mind buying 100 shares of a stock, you could, instead sell a put option. If the stock price falls, you'll end up buying the shares and if it doesn't, you are paid the premium and can continue selling more put options.