Learn/The Wheel Strategy/Lesson 2
Lesson 2 of 5

Selling Cash-Secured Puts

Phase 1: Selling Cash-Secured Puts

This is where every wheel begins. You sell a put option on a stock you want to own, set aside enough cash to buy 100 shares at the strike, and collect premium immediately. If the stock stays above your strike -- great, you keep the premium and do it again. If it drops below -- you buy the shares at a price you already decided you were happy with. Either way, you got paid. This is Phase 1.

Cash Required for a CSP
Cash Required = Strike Price x 100
CSP Example on AAPL
AAPL is at $192. You sell the $185 put expiring in 30 days for $2.80. You need $18,500 in cash as collateral. If AAPL stays above $185 (which a 0.25 delta says happens ~75% of the time), you keep $280 -- that's 1.5% return in 30 days, or about 18% annualized. If AAPL drops to $180, you buy 100 shares at $185 with a real cost basis of $182.20. Not a bad entry on the biggest company in the world.

Choosing Your Strike Price

Strike selection is the most important decision you'll make on every trade. I use delta as my guide: sell at -0.25 to -0.30 delta, which gives roughly a 70-75% chance of the put expiring worthless. This means I'm picking a strike below the current price where I'd genuinely be comfortable buying shares. Don't pick a strike just because the premium looks good -- pick it because you'd want to own the stock there.

  • Higher strike (closer to ATM) = fatter premium but higher chance of assignment. Use when you WANT to own the stock.
  • Lower strike (deeper OTM) = thinner premium but more cushion and lower assignment probability. Use when you want income with less risk.
  • Target 20-45 DTE to capture theta decay efficiently. I default to 30 DTE on most trades.
  • Avoid selling puts into earnings unless you've specifically decided you want to own the stock through a potential 10% gap down.
The 'Cash-Secured' Part Matters
Always have the full cash to buy 100 shares. I mean it. Selling puts on margin is how people blow up accounts. If SOFI gaps down 15% overnight, you need to buy those shares without getting a margin call. The wheel is a conservative strategy. Margin makes it a gamble. I've never used margin for CSPs and I never will.

Managing Your CSP

I close most CSPs when they hit 50-75% of max profit rather than waiting for expiration. Here's why: if I sold a put for $2.80 and it's now worth $0.70, I've captured 75% of the profit. I buy it back for $0.70, free up my capital, and sell a new put. Over a year, this lets me squeeze in more trades and compound faster. Chasing the last 25% isn't worth the gamma risk in the final week.

The short version
  • •A CSP requires setting aside 100x the strike price in cash. No margin, no exceptions.
  • •Target -0.25 to -0.30 delta for a 70-75% probability of keeping the full premium.
  • •Sell at 20-45 DTE to catch the steepest theta decay. I default to 30 DTE.
  • •Close early at 50-75% profit to free up capital and avoid late-stage risk.
Quick Check
1/3

How much cash do you need to secure a put at a $25 strike price?

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