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Cash-secured put

Selling a put while holding enough cash to buy the shares if assigned.

OptionsIntermediate

Definition

The seller collects the premium. If the stock stays above the strike, the put expires and the premium is kept. If it falls below, the seller is assigned and buys the shares at the strike, with the premium lowering the effective cost.

Watch out for

If the stock drops far below the strike, the loss can be large, since you own shares bought above the market.

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