Selling a put means you collect premium and accept the obligation to buy stock at the strike. If the stock stays above the strike, the put can expire worthless. If it falls below the strike, assignment becomes possible.
The most practical version is the cash-secured put: only sell a put if you have the cash and willingness to buy the shares.
Short put payoff
You collect premium if the stock stays above the strike, but you may be assigned below it.
Example shown: sell 95 put for 4.
Treat the downside like a plan to buy stock, not free income.
When it fits
Use it when you want to own a stock at a lower effective price or when you believe downside is limited. It is not free income. Economically, you are taking stock-like downside risk below the strike.
Strike selection
Pick a strike where assignment is acceptable. If you would panic owning the stock there, do not sell the put. Premium should compensate you for the risk, not distract you from it.
Management
You can buy back the put after most of the credit is captured, roll it, or accept assignment. Rolling should be judged as a new trade, not as a way to pretend the original trade did not lose.
Execution playbook
Use this section to turn the setup into a broker-screen plan: selection, follow-up action, risk limits, and reasons to skip the trade.
Key execution ideas
- Uncovered put sales collect premium while accepting stock-purchase obligation.
- Put writing can be framed as buying stock below current market price.
- Covered put sales and ratio put writing add different risk layers.
Before entering the order
- Use cash-secured sizing unless you intentionally want margin exposure.
- Pick a strike where owning the stock is acceptable.
- Check premium against the downside risk and upcoming events.
Follow-up action
- Close after most premium is captured.
- Accept assignment only if the stock thesis still holds.
- Roll only when the new strike and credit make sense as a new trade.
Skip the trade when
- You would not buy the stock at the strike.
- The company has binary event risk.
- You are selling puts because the stock looks cheap but you have no risk limit.
Options can lose money quickly. Treat every setup as a defined plan: entry, maximum loss, adjustment trigger, exit target, and a reason to skip the trade when pricing is not favorable.