Jun 18, 2026
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If you’ve been eyeing a stock but think the current price is too high, a cash-secured put lets you collect income while you wait for a better entry point — and if the stock drops to your target, you buy it at the price you wanted anyway.
It sounds complicated. It isn’t.
What is a cash-secured put (CSP)?
When you sell a put option, you’re giving someone else the right to sell you shares at a set price — called the strike price — on or before a specific date. In exchange for taking on that obligation, they pay you a premium upfront.
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“Cash-secured” simply means you have enough cash sitting in your account to cover the purchase if it happens. You’re not using borrowed money. No margin. No leverage.
The benefit is that you collect the premium immediately. If the stock stays above the strike price at expiration, the option expires worthless and you keep the premium as pure income. If the stock drops below the strike price, you’re assigned the shares — but you buy them at the strike price, which is the price you agreed to in advance.
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A plain-language example
Say shares of a Canadian bank you like are trading at $60 per share but you’d only want to buy at $55 per share. You sell a put option with a $55 strike expiring in 30 days. The buyer pays you a $1.50 premium per share, so $150 per contract (each contract covers 100 shares). You set aside $5,500 in cash.
Two outcomes:
- Stock stays above $55: The option expires worthless. You keep the $150 and your $5,500 in cash. That $150 on $5,500 over 30 days is an annualized return of roughly 33% (though real-world results will vary considerably).
- Stock drops below $55: You’re assigned 100 shares at $55 each. Your effective cost is $53.50 per share ($55 minus the $1.50 premium you kept). You own the stock at a lower price than it was trading when you started.
So what’s the risk? If the stock craters — say it falls to $30 per share — you still buy at $55, and you’re sitting on a paper loss of $23.50 per share minus the premium.
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Who is this strategy for?
Cash-secured puts (CSP) work best when you:
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- Already want to own the underlying stock or ETF at a lower price
- Are comfortable holding the stock if it gets assigned
- Have patience for short-term price swings
- Understand that the premium cushions losses but doesn’t eliminate them
This is not a strategy for stocks you’re indifferent about. The general rule is simple: If you wouldn’t want to own it at the strike price, don’t sell the put.
Can you do this inside a TFSA or RRSP?
Cash-secured puts are typically used in non-registered accounts; however, Questrade and Wealthsimple offer clients the opportunity to hold CSPs inside a Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP), provided the full strike value is held in cash inside the account.
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However, there’s an important caveat: Frequent options activity may be viewed by the Canada Revenue Agency (CRA) as the actions of a person “carrying on a business” — which could trigger adverse tax consequences, including having premiums taxed within the plan. Unfortunately, no CRA ruling exists on this point, and the outcome depends on each plan’s specific circumstances.
In general, then, most investors are advised to use CSPs occasionally and deliberately when used inside a registered account. This lowers the risk of being classified as a high-frequency options trader. If unsure, speak with a tax adviser before using this strategy inside a TFSA or RRSP.
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- Questrade has long been a top choice for DIY investors, offering commission-free stock and ETF trades while still providing low or no fees and pro-level trading tools. Questrade was also one of the first to offer investors the option to use CSPs in registered accounts, low-cost, professionally managed robo-advisor portfolios, through Questwealth, and no-trading fees on ETFs and stocks. Whether you’re a beginner or a pro, start trading today with Questrade.
What to do before your first trade
- Pick a stock you’d genuinely buy: Only sell puts on companies you’d be comfortable owning. The premium is not worth holding a stock you don’t believe in.
- Set the strike below current price: A strike below market price gives you a buffer and reduces the chance of assignment.
- Choose a short expiration: Many investors start with 30-day contracts. Shorter expiries give you more control and allow you to reassess regularly.
- Confirm your brokerage allows it: Not all Canadian brokerages offer options trading in registered accounts, and those that do may require you to apply for options approval before placing a trade.
- Keep the cash on hand: The full CSP purchase amount, in Canadian dollars, must remain available in your account for the full life of the contract.
A cash-secured put isn’t a shortcut to income — it’s a trade-off. You cap your upside (the premium) in exchange for a defined obligation (to buy). Used on the right stock, at the right price, it’s a disciplined way to either earn yield on idle cash or acquire shares at a discount.
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Romana King, Senior Editor at Money.ca, also writes for various North American publications and the RKHomeowner blog. Her book, House Poor No More, is an Amazon bestseller and five-time award winner, including the 2022 New York CPA Society's Excellence in Financial Journalism (EFJ) Book Award.
