Cash-Secured Put Calculator

A cash-secured put calculator works out the premium received, maximum profit, break-even price, and potential return for selling a put option backed by sufficient cash to purchase the underlying shares if assigned. It is used by options traders who want to generate income from premiums or acquire shares at a lower effective cost than the current market price.

How to Use the Cash-Secured Put Calculator

1. Enter the underlying stock's current price.
2. Enter the put option's strike price.
3. Enter the premium received per share for selling the put.
4. Enter the number of contracts (each contract typically covers 100 shares).
5. Enter the days to expiry and any broker commissions.
6. Click calculate to see the premium received, break-even price, maximum profit, maximum loss, and annualised return.

The Formula

Premium received = Premium per share x 100 x Number of contracts

Break-even price = Strike price - Premium received per share

Maximum profit = Premium received (if stock closes above strike at expiry)

Maximum loss = (Strike price - Premium per share) x 100 x Number of contracts (This equals the cost of buying the shares at strike minus the premium received; theoretical maximum if the stock goes to zero)

Annualised return on cash secured = (Premium received / Cash held) x (365 / Days to expiry) x 100

Cash held = Strike price x 100 x Number of contracts

Real-World Example

Stock ABC trades at £48. You sell 1 put contract with a strike of £45, expiring in 30 days, for a premium of £1.20 per share.

• Premium received: £1.20 x 100 = £120
• Cash required to secure the position: £45 x 100 = £4,500
• Break-even price: £45 - £1.20 = £43.80
• Maximum profit: £120 (if stock is above £45 at expiry, the option expires worthless)
• Maximum loss: £43.80 x 100 = £4,380 (if stock goes to zero, though in practice you own shares worth some amount)
• Annualised return: (£120 / £4,500) x (365 / 30) x 100 = 32.4%

If assigned (stock below £45 at expiry): you buy 100 shares at £45 but your effective cost is £43.80 per share (£45 - £1.20 premium).

Cash-Secured Puts as a Stock Acquisition Strategy

Many investors use cash-secured puts not as a pure income strategy, but as a way to buy shares they want to own at a lower effective price. If you want to buy ABC at £44 but it is currently trading at £48, selling a put with a £45 strike for £1.20 means you either collect £120 in premium if the stock stays above £45, or acquire the stock at an effective cost of £43.80 if it falls below £45. Either outcome is acceptable if you genuinely want to own the stock. This strategy requires willingness to own the underlying at the strike price: if the stock falls sharply (bad news, market crash), you will be assigned shares at the strike regardless of how far the stock has fallen. Only sell cash-secured puts on stocks you would be happy to own at the strike price.

Frequently Asked Questions

What happens if I am assigned on a cash-secured put? If the stock closes below your strike price at expiry (or in some cases, the option is exercised early on American-style options), your broker debits your account for the purchase of 100 shares per contract at the strike price, using the cash you set aside. You become a shareholder at an effective cost of strike price minus premium. You can then hold the shares, sell covered calls against them, or sell them outright.

How do I choose the right strike price? Selecting the strike price involves balancing premium income against the risk of assignment. Out-of-the-money puts (strike below the current price) have a lower probability of assignment and collect less premium. At-the-money or in-the-money puts collect more premium but have a higher chance of assignment. Many traders select a strike 5 to 15% below the current price, targeting the "sweet spot" of reasonable premium with lower assignment probability, and only at price levels where they would be happy to own the stock.

Is a cash-secured put the same as a covered call? They have the same risk/reward profile mathematically (via put-call parity) but different mechanics. A covered call involves owning shares and selling a call against them, generating premium income with limited upside. A cash-secured put involves holding cash and selling a put, taking on downside exposure in exchange for premium. Both strategies profit in flat or mildly rising markets and underperform in strongly rising markets. The practical difference is that a covered call requires owning shares first; a cash-secured put does not.

What tax treatment applies to option premiums in the UK? In the UK, option premiums received from selling put options are generally treated as capital gains rather than income for most retail investors. They are pooled with the underlying position if the option is exercised or settled. The 60-day rule (bed and breakfasting rules) and share identification rules can complicate the tax treatment of options on shares you own. A tax adviser familiar with UK capital gains rules for derivatives should be consulted for specific positions.

What the position is worth at expiry

The example above stops at the entry. The part that decides whether the trade was worth taking is the value at expiry, and that is a two-branch calculation. Above the strike the put expires worthless and the premium is kept. Below the strike the shares are delivered and the loss is the strike minus the market price, less the premium.

Every share price in the table assigns a value to the same trade: one contract, strike 45, premium 1.20, cash secured 4,500.

The zero line sits at 43.80, which is the break-even price from the formula. At 44.00 the trade is 20 ahead. At 40.00 it is 380 behind, which is 8.4 percent of the 4,500 that had to be set aside. The maximum loss of 4,380 assumes the shares are worth nothing at all, which is the theoretical floor rather than a realistic outcome for a listed company.

The shape is the point. The trade earns 120 in every scenario above the strike and gives up the whole distance below it, so the pay-off is a fixed gain against a large and open-ended loss. The premium looks like income, and it is income only until the shares are delivered.

How the annualised figure moves with the strike

The annualised return is the number that makes a 30 day contract comparable with a 90 day one, and it is the number most easily inflated by choosing a strike close to the share price.

Premiums in the table are assumed inputs for illustration, chosen to increase as the strike moves closer to the 48.00 spot price. Real quotes come from the market and change through the day.

Moving the strike from 42 to 47 more than triples the annualised return, and it also moves the break-even from 12.5 percent below the current price to 2.1 percent below it. The extra return is payment for a much higher chance of being assigned. A 2 percent cushion disappears on an ordinary down day, so the higher-strike row is not a better trade, it is a different trade.

The annualisation convention inflates short contracts

Annualising a 30 day result multiplies it by 12.17. Annualising a 7 day result multiplies it by 52.14. The same 2.667 percent unannualised return produces a figure that looks four times better on the shorter contract.

Three cautions belong with that column. A single 30 day contract repeated twelve times is not the same trade as a 12 month holding, because the underlying price moves between cycles and the strike has to be reset each time. The annualised figure assumes every cycle produces the same premium, which no series of quotes does. And the arithmetic ignores compounding on the cash while it sits in the account.

Commission works in the same direction as the strike, though the effect is smaller. On the 30 day 45 strike trade, a 1.50 commission on one contract cuts the annualised return from 32.4 to 32.0 percent, and a 10.00 commission cuts it to 29.7 percent. Per contract the cost looks trivial; across twelve cycles a year on ten contracts it is 120 a year on a 45,000 commitment.

How the tool treats the position

The calculator treats the option as held to expiry and settles it in cash terms. It assumes the premium is received in full at the start, that no dividend is paid on the underlying during the contract, and that the cash set aside earns no interest. In the UK the last assumption is the one most likely to understate the trade, because cash in a broker account can earn interest, and that interest is a real part of the return on a cash-secured position.

It assumes a European-style exercise, so the option cannot be exercised against you before expiry. A US-listed equity option can be, typically just before an ex-dividend date or when the put is deep in the money and carrying cost makes early exercise worthwhile. Early assignment does not change the maximum loss, but it changes when the shares arrive and therefore the date the return is measured over.

The formula ignores the margin treatment of the position. Because the put is cash-secured, the cash is normally held against the obligation and no additional margin is required, which is exactly why the strategy caps its return at the premium: the capital that would otherwise be invested elsewhere cannot be used for anything else.

It also ignores what happens after assignment. The table above stops at the shares arriving. A holder who takes delivery at 45 and then sells at 40 has lost 500 on the shares and kept 120 of premium, for a net 380. An alternative route is to keep the shares and sell covered calls against them, which is a new position with its own premiums and its own cap on the upside.

Finally, the relationship between this trade and a covered call is arithmetic rather than approximate. Put-call parity for a non-dividend-paying share states that the call price equals the put price plus the share price minus the strike discounted at the risk-free rate. With a 45 strike, a 1.20 put, a 48.00 share price, 30 days to expiry and a 4.5 percent rate, the matching call is priced at 1.20 plus 48.00 minus 44.83, which is 4.37. That identity is why the two strategies carry the same risk profile even though one starts with cash and the other starts with shares.

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