Selling Cash-Secured Puts Step by Step

Choose a stock you've researched and would genuinely buy at a lower price. Ask:

• Would I hold this stock for 6-12 months if assigned?
• Can I afford 100 shares at this price? (stock price × 100 = cash needed)
• Does this stock have liquid options with tight spreads?

If you answer yes to all three, it's a CSP candidate.

Look at the put side of the options chain. Pick a strike below the current stock price (OTM puts).

Using delta: Target 0.20-0.30 delta for a 70-80% probability of the put expiring worthless.

Using support levels: If the stock has technical support at $145 and it's trading at $155, the $145 strike is a natural CSP target. You're getting paid to buy at a level where the stock has historically bounced.

Using your target price: What would you pay for this stock today? Sell the put at that strike.

30-45 DTE is the standard. You capture the steepest part of the theta decay curve while having enough time to adjust if the trade moves against you.

Check for earnings dates. If the stock reports earnings before your expiration, decide whether you want that exposure. Earnings inflate IV (higher premium) but also create gap risk.

Place a "Sell to Open" limit order at the mid-point of the bid-ask spread. Your broker will reserve the cash collateral (strike × 100) and credit the premium to your account.

You now have a short put position. Set a reminder to check it or set a GTC (good-till-cancelled) "Buy to Close" order at 50% of the premium collected.

Close at 50% profit: You sold for $3.00; buy it back at $1.50. You captured $150 in half the time and freed up capital for a new trade.

Let it expire OTM: If worthless with a few days left, you can let it go.

If assigned: Welcome to share ownership. Transition to selling covered calls on those 100 shares. You've entered Phase 2 of the wheel.

If the stock drops significantly: Consider rolling the put down and out for a credit, or accept assignment and begin covered calls at a higher strike.