Selling Cash-Secured Puts

Phase 1: Selling Cash-Secured Puts

A cash-secured put (CSP) is the entry point of the wheel. You sell a put option on a stock you want to own and set aside enough cash to purchase 100 shares at the strike price. In return, you receive premium immediately. If the stock stays above your strike at expiration, the put expires worthless, you keep the premium, and you can sell another put. If the stock drops below your strike, you are assigned and purchase the shares.

Choosing Your Strike Price

Strike selection is one of the most important decisions in the wheel. A common starting approach is to sell puts at a delta of -0.25 to -0.30, which gives you roughly a 70-75% probability of the put expiring worthless. This means you are choosing a strike below the current price — an out-of-the-money (OTM) put — where you would be happy buying shares if the stock dropped to that level.

• Higher strike (closer to ATM) = more premium but higher assignment probability
• Lower strike (deeper OTM) = less premium but lower assignment probability and better entry price if assigned
• Target 20-45 DTE (days to expiration) to capture theta decay efficiently
• Avoid selling puts into earnings unless you have a specific thesis and understand the risk

Managing Your CSP

Many wheel traders close their CSPs early when they have captured 50-75% of the maximum premium, rather than waiting until expiration. This frees up capital to open a new position sooner and reduces the risk of a late reversal. For example, if you collected $2.50 in premium and the put is now worth $0.60, you have captured 76% of the profit. Buying it back for $0.60 and selling a new put may generate more total income than waiting the final week.