Selling Puts: Discipline, Collateral, and Capital at Risk

Cash-secured put basics:

• One standard equity contract = 100 shares
• Cash secured = set aside strike x 100 per contract
• Max profit on the option leg is usually the premium received
• Risk includes owning stock lower after assignment, minus premium

Premium vs. capital—what each measures:

• Premium collected — income from the option leg if it expires worthless or you buy back cheaper
• Collateral — cash reserved at your broker for assignment (strike x 100 per contract)
• Capital at risk — collateral plus downside on assigned shares after entry
• Opportunity cost — collateral not available for other trades or emergencies

Simple collateral checklist per new short put:

1. Collateral per contract = strike price x 100
2. Add to existing pledged cash for all open short puts on that account
3. Compare total to available cash and your max deployment rule (e.g. 50% of dry powder)
4. Stress-test: if assigned on all puts, can you hold every position?
5. Log strike, expiration, premium, and collateral in your journal

Example: selling a $50 CSP on HIMS

• Stock price at entry: $52
• Strike: $50
• Premium collected: $1.20 per share = $120 per contract
• Collateral required: $50 × 100 = $5,000 per contract
• Return if expires worthless: $120 ÷ $5,000 = 2.4% on pledged cash for that trade
• Effective purchase price if assigned: $50 − $1.20 = $48.80 per share
• Max loss per contract (stock to zero): $4,880 per contract, plus opportunity cost of tied-up cash

Seven pre-trade rules for selling puts:

1. I want to own this underlying at the strike for at least a year — not just tolerate owning it. If you would not buy the stock outright today at the strike price, the premium is not worth the obligation. Ask yourself: if assigned tomorrow and the stock drops another 20%, would I buy more?
2. Total collateral after this trade stays under my written cap — Add the new line to every open short put before you submit. A cap written in calm markets (e.g. 50% of dry powder) only works if you enforce it when IV is rich and tickers look cheap.
3. This expiration does not stack too much with existing expirations — Three puts expiring the same Friday can assign together. Spread dates so one bad week cannot force multiple stock purchases at once.
4. Sector exposure stays diversified — no third semi put in the same week — Correlation spikes in drawdowns. Two tech puts plus one chip name is not three independent bets; it is one macro bet with triple collateral.
5. Implied volatility is not my only reason to enter — High IV inflates premium but also signals event risk. You still need a view on the business, the balance sheet, and where you would add shares after assignment.
6. I sized contracts for one bad gap, not for perfect calm — Leave cash and mental room for a 10–15% overnight move. If one gap would force a margin call or a panic roll, the size is too large.
7. I logged the trade before market close — Strike, expiration, premium, collateral, and which rule check you passed belong in the journal the day you open. Memory edits history; records do not. See our options trading journal guide for field templates.

When rolls help vs. hurt:

• Help — you still want the stock, need time, and collateral allows the new line — Rolling for net credit while keeping total collateral under your cap can be rational if the thesis is intact and you documented why more time helps.
• Help — you convert undefined hope into a defined plan with notes — A roll with a stated goal (lower effective basis, reduce contracts, move strike) beats an emotional click to avoid seeing red on the screen.
• Hurt — you roll only to avoid booking loss while doubling exposure — Chasing premium on the same ticker after a bad week often stacks risk. If you would not open the new put fresh today, do not roll into it.
• Hurt — collateral stacks on the same ticker across multiple expirations — Two or three overlapping puts on one name concentrate assignment risk. One gap can assign multiple lines or trap cash you need elsewhere.
• Hurt — you would not open the new put fresh today — The best roll test: ignore sunk cost. Would you sell this strike and expiration as a brand-new trade? If no, close or take assignment instead.

Five steps to build a disciplined put book:

1. Set max collateral % of net liquidating value in writing — Pick a number in a calm week (e.g. 40–60% of NLV for cash-secured puts) and treat it as a hard ceiling. Revisit quarterly, not after every green day.
2. Cap contracts per underlying and per sector — Example: no more than two open puts on the same ticker, no more than 30% of collateral in one sector. Caps prevent one story stock from becoming half your book.
3. Stagger expirations so one week cannot assign everything — Map expirations on a calendar. If four lines cluster on one Friday, roll or close one before adding another.
4. Review assigned stock as a separate book—would you buy more today? — Assigned shares are no longer "premium trades." If you would not add at the current price, your sell discipline failed somewhere upstream.
5. Use a journal or app to see pledged cash before each new order — Spreadsheets break when rolls multiply; a dedicated tool shows total collateral and expiration load in one view before you click submit.

Key takeaways:

• Cash-secured puts require strike x 100 cash per contract
• Premium collected is not the same as capital at risk
• Run seven pre-trade checks; log rolls with a stated purpose
• Pair sizing with a journal so expirations never surprise you