Cash-Secured Put
New to options? Start with UK options basics and how assignment works. In the Level 1 sequence this page follows the covered call and comes before the collar. Tesco is used as a model underlying throughout; this is not a view on Tesco.
A cash-secured put on one Tesco contract
A cash-secured put is a written (sold) put with enough cash held to buy the shares at the strike. The writer is paid a premium now and, if the holder exercises, must buy the shares at the strike. On this page's example that is £37.50 for 32 days against £4,300 of cash. The most that can be lost is the strike less the premium, £4,262.50, if Tesco went to zero. What is given up is any fall below the strike, which the writer absorbs, and any rise beyond the premium, which the writer does not share. It is designed for a holder of cash who would buy the shares at the strike, and pays that holder for waiting.
The cash is the whole point of the name. A put written without it is an uncovered put, and the broker then asks for margin instead; a put backed by the full £4,300 can be held in a cash account, where the cash is set aside until the put is closed, assigned or lapses.
Those four figures ignore costs. Take off £1.40 of commission and £5.00 for half the quoted spread and an expiring put leaves £31.10: 0.72% of the cash for 32 days, or 8.2% a year if the same premium were there every month. With those opening costs the breakeven moves to 426.89p and the worst case to £4,268.90; with the £21.50 SDRT and £1.40 commission due on assignment, the shares would cost £4,286.80, all of which would be lost if Tesco went to zero (£4,291.80 counting the opening half-spread). Load this put into the strategy builder.
Premium against the buffer: five Tesco puts for 18 September
The strike decides two things at once: how much the put pays and how far Tesco can fall before the writer is buying above the market. The same chain on 17 August prices five choices. The 460 put is already 10p in the money, so 10p of its premium is intrinsic value: money the writer receives now and pays back straight away if assigned at 460p with Tesco at 450p. Only its time value is payment for the obligation.
Each premium is the binomial-tree value of an American put, rounded to the 0.25p tick; delta is the writer's, the opposite of the put's own, so it is positive, and like the Greeks further down it comes from the same tree. Model probability assigned is the risk-neutral, lognormal probability (IV 22%) that the put finishes in the money; it ignores early exercise. ICE authorises strikes share by share and publishes no interval table that we could find (checked 26 September 2026), so these strikes are illustrative.
The menu makes the trade-off concrete. Moving from the 440 to the 420 strike almost doubles the fall Tesco can take before the writer is behind, from 3.7% to 7.1%, and cuts the premium from 6.75p to 2.00p. The 400 put pays 0.25p, £2.50 on the contract, which is less than the round-trip cost of writing and buying it back. The model sheet sets no 12-month IV range for Tesco, so no IV rank is quoted here; at 18% IV the 430 put would have paid £23.06, and at 26% £54.35, with the model probability of assignment moving from 18.7% to 27.6%.
Standard or mini: what 100 shares change
Since 8 December 2025 ICE has listed a mini option on 22 UK shares, Tesco among them (code 8TC): 100 shares a contract, a 0.25p tick worth £0.25, and expiries in the front three months plus the next three quarters. The same September 430 put on the mini needs £430 of cash instead of £4,300. That changes who can write the put at all. It also changes what the costs are, because commission is charged per contract, not per share.
On the mini the same put earns half the yield, because £2.20 of fixed costs take 59% of a £3.75 premium. Ten minis replicate one standard contract's exposure and premium, £37.50, but at £17.00 of commission against £1.40: £15.50 kept against £31.10. The mini's use is the reverse case: a reader with a few hundred pounds of cash, for whom one standard contract would tie up far more than they hold, can write one put on 100 shares and see the mechanics through assignment at a scale where a loss of the kind in path C below costs pounds, not hundreds of pounds. The minis are listed on ICE; whether a given broker offers them and quotes a two-way price has to be checked (we could not confirm either for IBKR or Saxo, checked 26 September 2026). Open the mini version in the strategy builder.
Held to expiry with no assignment, unrounded model premiums at IV 22%, so at the 430 strike the lines sit a little above the table's figures, which use the 3.75p fill. Below about 422p the mini's premium does not cover its fixed costs; the standard contract reaches that point only below about 407p. The further out of the money the strike, the more the mini is a cost exercise.
Payoff, and the price at which the shares arrive
Below 430p the result falls £10.00 for every penny, exactly as a holder of 1,000 shares bought at 426.25p would. That is the honest description of the downside: assignment is a share purchase at the strike, discounted by the premium, on a day when the market price is lower. Fourteen days out, the mark sits below the expiry figure near the strike, because the put still has time value left to decay: at 430p it shows −£33.70 on 4 September against £37.50 at expiry.
Worked example: Tesco from 17 August to 18 September 2026
One standard contract, three price paths
Model inputs. Tesco at a model 450p on Monday 17 August 2026 (its actual close was 447.8p); implied volatility held at 22% throughout; interest at Bank Rate, 3.75%; no ex-dividend date inside the put's 32 days; one standard 1,000-share contract, American, valued on the binomial tree; £1.40 commission per contract (IBKR UK tiered rate, checked 26 September 2026), which is also charged on assignment; a spread cost of £5.00 per trade, half of an illustrative 1.00p quote. Every Tesco price after 17 August is invented for the lesson. Method and model sheet.
The worked plan uses the same two teaching conventions as the rest of the library: buy the put back once it costs half the premium or less, and close or roll with 21 days left. On a 32-day put the second one fires after only 11 days, which path B shows is not free.
Path A: Tesco rises. Tesco climbs to 461p by Monday 24 August, the first day the put can be bought back for half the premium or less: model 1.29p, bought at 1.25p. The writer keeps £12.20 after two commissions and two half-spreads, and the £4,300 is released 25 days early. Holding to expiry, the put lapses and the writer keeps £31.10.
Path B: Tesco drifts sideways. On Friday 28 August, 21 days before expiry, Tesco is still at 450p and the put is worth 2.33p, not yet half the premium, so the time stop fires: bought back at 2.25p, the trade keeps £2.20 after costs. Holding would have kept £31.10. On this put the time stop gave up £28.90 to end 21 days of exposure; the convention was designed around entries about 45 days out, where it leaves more of the premium already earned.
Path C: Tesco falls through the strike. By 28 August Tesco has slipped to 436p; the put is worth 6.10p and the time stop buys it back at 6.00p, a loss of £35.30 after costs. Holding instead, Tesco closes at 420p on 18 September and the put is assigned. The writer buys 1,000 shares at 430p, pays £21.50 SDRT as the buyer and £1.40 commission on the assignment, and for tax the premium comes off the cost: £4,286.80, or 428.68p a share. Marked at 420p, that is −£91.80 after the opening half-spread. Someone who had simply bought 1,000 Tesco on 17 August at 450p, paying £22.50 SDRT and an illustrative £3.00 commission (£4,525.50 in all), would be −£325.50 at the same price.
Greeks, and what a volatility jump adds to a fall
The last two columns separate the two things that usually happen together when a share falls. A one-standard-deviation drop to 421.62p with volatility unchanged marks the position at −£112.91. If implied volatility also jumps from 22% to 28%, a stated stress of the kind the IV page describes for a falling market (how volatility moves with the price), the mark is −£142.10: £29.19 of the loss is the volatility, not the price. Delta shows how quickly the position turns into a share holding: 221 share-equivalents at entry, 596 after the fall, 38 after the rise. Theta is the writer's daily income, £1.29 at entry. Unlike a covered call writer, the put writer holds cash rather than shares, so no dividend is received while the put is open.
When the put is assigned: what happens on ICE and at the broker
ICE stock options are American: a holder can exercise on any business day up to 18:30 London time, and on the last trading day (the third Friday) the option stops trading at 16:30. The exchange's clearing house passes an exercise to a clearing member, which passes it to a client short that series. The shares are delivered, and the strike paid, two business days after the exercise. In a cash account the £4,300 has been restricted since the put was written, so the purchase simply uses it; the broker adds the £21.50 SDRT, which IBKR passes to the client, and its assignment commission. The detail of notices, cut-offs and what a broker does when cash is short is on the assignment page.
Early assignment of a put follows different logic from a call. A put holder gains nothing by exercising before an ex-dividend date: the share price is expected to drop by the dividend, which makes the put worth more, so a holder waits. Early exercise of a put pays when it is deep in the money and the interest the holder could earn on the strike exceeds the put's remaining time value. On the model, with Tesco at 380p and 7 days left, the American 430 put is worth exactly its intrinsic value, 50.00p, while the European value is 49.69p: exercising now is worth more than holding, so for the writer of that put assignment can come on any business day (early assignment of short puts).
Tesco's interim dividend shows the ex-date effect. The model assumes 5.08p going ex on Thursday 15 October 2026 (35% of last year's 14.5p total; Tesco sets the real amount with its interim results on 8 October). That date sits inside an October put's life. On 17 August the October 430 put (60 days) is worth 8.30p with the dividend and 6.91p without it: the expected drop in the share price is paid to the writer up front, and after 15 October a put that is in the money becomes more likely to be exercised early, not less.
Premium against savings interest, after tax
The natural comparison for a cash-secured put is the cash left in a savings account. For 32 days, £4,300 at Bank Rate of 3.75% (a stand-in for a savings rate) earns £14.14. The put, if it lapses, keeps £31.10 after costs. The two are taxed differently: interest is savings income, the premium a capital gain.
Within the allowances both are tax-free: the personal savings allowance covers £1,000 of interest for a basic-rate taxpayer and £500 at the higher rate (none at the additional rate), and the annual exempt amount covers £3,000 of gains. The premium is not free money, though. The interest is certain; the premium is what the writer is paid for agreeing to buy at 430p, and path C shows what that agreement costs in a fall. The collateral may also earn interest at the broker, but not always: IBKR UK's interest page says no interest is paid on the first £8,000 of sterling cash, and accounts with a net asset value under USD 100,000 receive a lower rate (IBKR UK interest rates, checked 27 September 2026), so £4,300 held there on its own would earn nothing.
UK tax: a grant that can become a cheaper share cost
The last row applies the holding from Example 11 on the tax page, which works the same trap on an October put, to this page's September put: 1,000 Tesco bought at 480p with a pool cost of £4,827.00, sold on Tuesday 1 September at 440p for £4,397.00 after commission. The loss is deferred, not lost: the shares then held keep the old pool cost. Computed at mid-price fills; a fill away from the mid changes the premium and the result pound for pound.
Costs in pounds, and the permission a short put needs
On a premium this small the spread matters more than the commission: £5.00 each way on a £37.50 premium. Tesco's standard contract covers 1,000 shares and moves in 0.25p steps worth £2.50; like every ICE UK stock option it has only monthly (third-Friday) expiries, no weeklies (contract sizes).
A cash-secured put is Level 1 in this library's order, but not at every broker. IBKR's permission ladder puts short puts at Options Level 3, alongside credit spreads, and its permissions page makes no exception for puts backed by cash (checked 26 September 2026); covered calls are Level 1 there. IBKR's cash account allows written puts with the cash available and restricted. A US broker may do the same under Regulation T (12 CFR 220.8(a)(3)). The ladder and account types are compared on the Level 1 page.
The same payoff as a covered call
At the same strike and expiry, a written put plus cash and a written call plus shares have the same payoff at expiry. On this chain the September 430 call is worth 25.17p against 3.76p for the European 430 put: the difference is 450p less the present value of 430p, and the 1.41p gap between the two time values is the interest on 430p for 32 days, which the put writer's cash earns and the call writer's shares do not. The covered call page works the same link on BP (covered call or a neighbour). In practice the two differ in who receives any dividend, in SDRT (the put writer pays it on assignment; the covered call writer paid it when buying the shares) and in which is available: many holders already own the shares.
Cash-secured put or an alternative: what changes in pounds
A writer who wants to extend a put rather than close it can roll it: the rolling page takes a Tesco 430 put through the close-or-roll decision with 21 days left, and shows the tax of a roll.
How these numbers are calculated
The arithmetic behind the tables
- Premiums: American puts on a binomial tree (200 and 201 steps, averaged), never below intrinsic value; Tesco's assumed 5.08p dividend on 15 October as a discrete payment where an option's life includes it. Model values to 2 decimals; fills on the 0.25p tick. Values before expiry and the Greeks come from the same tree (Greeks by small bumps to the share price, the date and the volatility).
- Written put at expiry, per contract: 10 × premium − 10 × max(0, 430 − S), in pounds, for S in pence (the mini: one tenth).
- Breakeven: strike − premium. Fall to breakeven: (450 − breakeven) ÷ 450. Most it can lose: 10 × (strike − premium).
- Time value a year on the cash: time value ÷ strike × 365 ÷ 32. Yield after costs: (premium − commission − half-spread) ÷ cash × 365 ÷ 32.
- Model probability assigned: N(−d2) under the lognormal, risk-neutral model with IV at 22%. The one-standard-deviation range for 18 September: 450p × e to the power ±0.22√(32/365), which is 421.62p to 480.29p.
- Savings interest: 4,300 × 3.75% × 32 ÷ 365. Share cost on assignment: 1,000 × 430p + SDRT + commissions − premium.
The site build re-runs each modelled figure above through the options engine and flags any figure where the page and the engine disagree (the checks).