Overview
Learn more about PUT options in What is a PUT option? and How to sell a PUT option.
Selling a PUT option is a great way to earn income while potentially buying a stock you like at a discount. When you sell a PUT, you’re agreeing to buy 100 shares of a stock at a specific price (called the strike price) by a certain date — but only if the stock falls below that price. In return, you get paid a premium up front.
For example, if you sell a $100 PUT on a stock and collect a $3 premium, you’re agreeing to buy it at $100 — but your real cost would be $97 ($100 – $3). If the stock stays above $100, the option expires worthless and you keep the full $3. If it drops below $100, you’ll be assigned and buy the stock — but you’re still better off than if you had bought it at full price.
This strategy works best with stocks you actually want to own, and it’s a smart way to build positions slowly while earning passive income along the way. Just make sure you have enough cash to buy the stock if assigned — that’s why it’s called a cash-secured PUT.
Risks
Assignment risk: If the stock drops below the strike price, you must buy the shares at the agreed price, even if the stock keeps falling.
Capital requirement: You need enough cash to buy 100 shares per contract — this strategy ties up significant capital.
Stock-specific risk: If the company suffers bad news, the stock could fall far below your strike, resulting in a larger unrealized loss.
Tips
This strategy is best used on strong, fundamentally sound companies that you’d be happy to own long term. If you’re comfortable holding the stock, then being assigned isn’t a loss — it’s just a chance to buy shares at a discount and get paid while waiting.