Understand the position
Sell one $95 put for $2 per share and reserve $9,500 for the purchase of 100 shares. The maximum option profit is the $200 premium if the put expires without value. The expiration break-even is $93 after the premium, before costs.
At stock zero, buying shares at $95 would lose $9,500 before the $200 premium, leaving a $9,300 maximum loss in this simplified example. The cash is collateral for an obligation to buy even after the investment outlook deteriorates.
Read the payoff and try a scenario
Cash-secured put: profit and loss at expiration
- Sell one $95 put for $2; reserve $9,500 to buy 100 shares if assigned.
- Expiration break-even stock price: $93 before costs.
- The plot displays $70–$130 only. Move the control to $0 to examine a stock collapse; the right edge is not an upside bound.
Read the chart data
| Stock price at expiration · USD | Whole position P/L (Net P/L · USD per share) |
|---|---|
| 70 | -23 |
| 80 | -13 |
| 90 | -3 |
| 93 | 0 |
| 95 | 2 |
| 100 | 2 |
| 110 | 2 |
| 120 | 2 |
| 130 | 2 |
One contract per option leg; 100 shares where the strategy includes stock. Read the fixed position above before changing the price.
At stock $80, the put’s intrinsic obligation is $15 per share. Subtract the $2 credit and the net loss is $13 per share, or $1,300. If assigned, the investor receives 100 shares after paying $9,500; the earlier premium does not erase the markdown.
At $100 the maximum $200 premium is retained, but the investor does not participate in the stock’s rise as a shareholder would. The small flat profit region and steep downside are different parts of the same position.
Separate expiration economics from live prices
The diagram calculates net profit or loss at expiration with the specified position intact. Before that date, remaining time, implied volatility, rates, dividends and bid–ask spreads affect each leg’s market value. A break-even shown here is an expiration break-even, not the price at which an early closing trade must be profitable.
For an actual position, calculate net execution costs and contract quantities, and verify every leg’s expiration, underlying and deliverable. The examples use one standard 100-share contract per leg. Adjusted contracts can differ; an incomplete or mismatched hedge changes the risk.
Understand the tradeoffs and obligations
The strategy can be described as accepting a purchase obligation, but “being paid to wait” omits the risk of having to buy after a large decline. Compare that obligation with simply retaining cash and having no open contract.
Early assignment is possible. Broker collateral rules and interest on reserved cash affect actual results. Repeatedly selling puts and then covered calls, sometimes called the wheel, continues exposure to the same stock and does not convert these risks into guaranteed income.
What is the maximum loss on this $95 put sold for $2 if the stock becomes worthless?
Show the explanation
($95 − $2) × 100 = $9,300, excluding costs. Cash security makes the purchase fundable; it does not eliminate the economic loss.
Sources and editorial notes
Original explanations and hypothetical examples prepared with AI assistance. Primary reference check dates are listed below. Numerical examples are hypothetical unless explicitly identified otherwise.
- OCC / OIC: Cash-Secured Put
Position construction and risk tradeoffs. All premiums, strikes, payoff graphics, practice questions and calculations are original fictional examples, not copied charts or performance results. Checked October 17, 2026.
- FINRA / OCC: Understanding Assignment
Exercise, assignment, after-hours risk and broker cutoff considerations. Strategy diagrams assume intact matching positions through settlement. Checked October 17, 2026.