Key Takeaways
- A cash-secured put means selling a put option while setting aside enough cash to buy 100 shares at the strike price.
- If the stock stays above the strike, you keep the premium and nothing else happens; if it falls below, you buy the shares at the strike .
- Because the CRA warns that writing put options inside a registered plan may amount to carrying on a business, and most brokers do not offer the strategy there.
The Strategy in One Sentence
A cash-secured put is a promise, made for money: you sell someone the right to sell you 100 shares of a stock at a set price (the strike) by a set date — and you keep enough cash on hand to honour that promise in full.
The Montréal Exchange describes the goal plainly: writing an at-the-money or out-of-the-money put while "simultaneously setting aside enough cash to buy the stock," aiming "to be assigned and acquire the stock below today's market price." That framing matters. This is not a trade for making a stock go down. It is a way of naming your price for a stock you would happily own — and getting paid while you wait to see if the market comes to you.
One standard equity option contract covers 100 shares, so every number in this strategy scales by 100.
A Worked Example (Illustrative Numbers Only)
Say a stock trades at $52 and you would gladly buy it at $50. You sell one put option with a $50 strike and pocket a premium of $1.20 per share — $120 for the contract. You set aside $5,000 in cash. That secured cash is what makes the put "cash-secured."
Two things can happen:
- The stock stays above $50 until expiry. The put expires worthless. You keep the $120, your $5,000 is freed up, and nothing else happens. Your return is the premium on the cash you reserved — in this example, 2.4% for the life of the option.
- The stock falls below $50. You are assigned: you buy 100 shares at $50, spending your $5,000. But because you already collected $120, your effective purchase price is $48.80 a share — below the $50 you were willing to pay, and well below the $52 where the stock traded when you made the deal.
That second outcome is the strategy working as designed. Assignment is not failure here — it is the purchase you agreed to, at a discount.
Two mechanical warnings belong in any honest example. Canadian equity options are American-style: the buyer can exercise at any time before expiry, so assignment can arrive early — the MX's own guide notes an early exercise would force you to convert your cash to pay for the stock sooner than planned. And unlike a limit order, you cannot cancel the promise once the price drops. When the stock is falling, you are committed.
The Risk Is the Stock, Not the Option
A cash-secured put caps your income at the premium and leaves your downside almost identical to owning the stock itself. If that $52 stock falls to $30, you still buy at $50 (effectively $48.80) and are immediately down roughly $1,880 on the position. The premium cushions; it does not protect.
That is why the strategy's first rule is about stock selection, not option selection: only sell puts on companies you would be genuinely content to own at the strike price, in a size you can hold without panic. Selling puts on a stock you do not want, purely because the premium looks fat, is how this conservative strategy becomes a trap — the premium is usually fattest precisely where the falling risk is worst.
There is also an opportunity cost running the other way: if the stock takes off, you keep only the premium while your cash sat reserved. You sold the upside above today's price in exchange for certainty of payment.
Where Canadians Can (and Can't) Run It
This is where most online explainers — written for U.S. readers — mislead Canadians. The CRA's Income Tax Folio S3-F10-C1 draws a sharp line inside registered plans: writing a covered call on shares a plan already owns does not, in itself, mean the plan is carrying on a business — but "the writing of an uncovered call option, or the writing of a put option, whether alone or in combination with other positions, may result in the plan being considered to be carrying on a business." A registered plan that carries on a business is taxable on that business income — the shelter is lost on it. The folio adds two practical hazards: a plan generally cannot borrow to meet an assignment, and cash a broker holds as margin or collateral stops being a qualified investment if it sits there more than a few days.
The broker layer finishes the job: registered accounts cannot use margin, and most Canadian brokers simply do not offer cash-secured puts inside an RRSP or TFSA — practice is split — Wealthsimple's current help pages, for example, list secured-put selling among the strategies available in registered accounts, while other brokers cap registered accounts at buying options and covered calls — but a broker offering the strategy does not change the CRA's warning. A companion Twikup guide, Options in Registered Accounts, will lay out exactly which strategies are permitted in registered accounts. In practice, the cash-secured put lives in a non-registered account, and investors who repeat it systematically often graduate to the Wheel strategy, which pairs cash-secured puts with covered calls in a single cycle.
Taxes, briefly, for the non-registered account: under section 49 of the Income Tax Act and the CRA's longstanding guidance in Interpretation Bulletin IT-479R, a premium received by an investor on capital account is generally a capital gain in the year the option is written — not when it expires. If you are assigned instead, that earlier gain is cancelled and the premium reduces your adjusted cost base in the shares you bought. (Investors the CRA views as trading on income account are taxed differently.) Either way, keep records of every premium: it changes your numbers later.
The Twikup Take
A cash-secured put turns "I'd buy it cheaper" into a paid standing order — premium today, or shares at your price tomorrow. The strategy fails only one way: promising to buy something you never really wanted. Pick the stock first, set the cash aside, and let the option do the waiting.
Image: Illustrative image.