Cash-Secured Put Scanner: What to Filter Before Selling a Put

Every put screener lets you sort by premium, and that is the first thing most people do. On its own, though, a big premium tells you very little. It is the payment. The columns next to it are the ones that explain what you are being paid to take on: how much you might have to pay for the stock, how far it can fall before you lose money, whether that payment is generous by the stock's own standards, whether you can get a decent fill, and what the company has scheduled before the contract expires.

The short version

• Selling a put is a promise to buy 100 shares at the strike, whatever the stock does.
• Compare contracts at their break-even price rather than their premium.
• A 10% cushion is roomy on a calm stock and thin on a jumpy one.
• A high premium is the market's price for a risk you can usually identify.
• Several sensible-looking puts can add up to one large bet on the same thing.

What you are agreeing to

Selling a put is a promise. If the buyer decides to use the contract, you buy 100 shares at the strike price, whatever the stock happens to be trading at that day. Cash-secured means you keep the money for that purchase sitting in the account rather than borrowing it.

So the cash comes first. Sell a put with a $50 strike and $5,000 is set aside until the contract expires or you buy it back. Nothing else can use that money in the meantime.

Cash held per contract = strike price x 100 shares

The premium you collect is credited to the account, so your net outlay is that figure minus the premium: $4,900 on the example above if you collected $100. Not every broker lets the credit offset the hold, and margin accounts calculate the requirement differently, so check how yours does it before you assume the cash is free.

The Options Industry Council, which runs investor education for the U.S. options exchanges, teaches put selling as a way to buy stock at a price you like rather than as a way to earn income. Its test for picking a strike: only sell the put if you would be happy owning the shares at that price even after a bad fall. Plenty of generous-looking contracts do not survive that question.

Break-even at expiration = strike price - premium received per share

Say you collect $1.00 a share for that put. Because the contract covers 100 shares, that is $100 in your account, and it brings the cost of the shares down to $49 each. The premium lowers what you pay, but it does not stop the stock falling. If the stock is at $35 when the contract expires, you still buy at $49, so you are down $14 a share, or $1,400 on the one contract. Commissions, tax, and closing the position early all move that figure a little.

What a big premium is telling you

Nobody pays extra for nothing. A put pays unusually well because the market expects the stock to swing a long way, or because something is scheduled before expiration, or because so few people trade the contract that you give up part of the price getting in and out. The premium is the market's estimate of that risk, and your job is to decide whether the estimate is generous.

It is easier to see with numbers. Here are two made-up contracts, picked so that everything you would normally compare is identical. Both stocks trade at $55. Both puts have a strike of $50 and 30 days left, so both hold $5,000.

B pays three times as much, $300 against $100, and it has the bigger cushion as well. That is exactly the combination that puts a contract at the top of a sorted list. Look at the rest of the row, though.

Expected move is the market's estimate of a one-standard-deviation range over the life of the contract: roughly two months in three, the stock finishes inside it, and one month in three it finishes outside. B's is $9 and its cushion is $8, so an ordinary month, not a disaster, can carry the stock past break-even. A's cushion of $6 sits comfortably outside its $4 expected move.

B's IV rank of 80 says today's implied volatility is near the top of its own past year, which is where the extra premium comes from. Earnings land before expiration, which is the usual reason for that, and an elevated IV rank ahead of a scheduled event is the market pricing that event in advance. And the gap between the bid and the ask is 50 cents, a sixth of the premium, which you pay once going in and again coming out.

B is a perfectly reasonable trade. The extra $200 is what you are being paid to take on the earnings report and the wider spread.

What to filter on

1. Would you want to own the company?

Start here. It rules out the most contracts for the least effort, and it is the only filter that still matters if everything else goes wrong, because a put you did not want assigned is a stock you did not want to hold.

In practice that means the ordinary work: what the company sells and to whom, whether it makes money doing it, how much debt sits on the balance sheet and when it comes due, and where the stock sits against its own range over the past year. A stock down 40% is either a discount or a warning.

2. Where do the losses start?

At break-even. Cushion is the same fact as a percentage: how far the stock can drop before it gets there. Those two numbers are what let you compare a $100 contract with a $300 one fairly.

Read cushion against expected move rather than on its own, since a 10% cushion is roomy on a utility and thin on a biotech. Annualized yield is good for one job, which is putting a one-week contract and a six-week contract on the same footing. It says nothing about risk, and it flatters short contracts.

3. Is the premium rich for this stock?

IV rank and IV percentile answer that. Both compare today's implied volatility against the same stock's own past year: rank places it between the year's low and high, percentile counts the share of days that were lower. A rank of 80 means today is near the top of that range.

This is the column that tells you whether you are being paid well or simply looking at a volatile stock, and it is why two contracts with the same premium can be quite different propositions. Sellers generally prefer higher readings, but high on its own is not a signal. Check what is causing it first, because the most common causes are a scheduled event or bad news, and neither is free money.

4. What delta measures

Delta measures how much an option's price moves when the stock moves a dollar. That is how FINRA defines it, and it stops there. Traders often borrow it as a rough guide to assignment instead, so a put with a delta of -0.20 gets treated as having about a one-in-five chance of finishing in the money. As rough guides go it is a decent one, but it comes out of the pricing math rather than from any forecast, and it moves as volatility and time change. Most screens filter somewhere between 0.15 and 0.30. Keep expected move next to it.

5. Can you get in and out?

Check the individual contract, not the stock. Three numbers tell you most of it: how many contracts are already open, whether any changed hands yesterday, and how wide the gap is between the bid and the ask. A common rule of thumb is a few hundred contracts of open interest and a gap inside 10-15% of the midpoint price. High volatility on a contract nobody trades is not a bargain, because you pay for the quiet market twice.

6. What is on the calendar before expiration?

Earnings are the usual first cut, since one report can move a stock further than a whole quiet month. Dividends matter in a smaller way: on the ex-dividend date the stock normally opens lower by roughly the dividend. U.S. equity options can also be exercised early, at any point before expiration. Mostly that happens when a put is well in the money with almost no time value left.

What the columns on a screener should show you

Those six filters imply a specific set of columns. Check any screener against them before you trust a sorted list. Premium and yield are table stakes. The ones that decide the trade are:

• Break-even and cushion, in dollars and percent, so contracts at different strikes compare directly.
• Expected move over the life of the contract, sitting next to cushion rather than three screens away.
• IV rank or percentile, so you can tell a rich premium from a merely volatile stock.
• Delta, described for what it measures rather than as a probability.
• Open interest, daily volume, and the bid-ask spread as a percentage of the midpoint, per contract.
• Days to the next earnings report and the next ex-dividend date, flagged when they fall before expiration.

Two habits matter as much as the columns. Sort by something other than premium at least once, because the top of a premium-sorted list is a list of the market's biggest worries. And treat every filter as a floor rather than a target: a screen that returns eighty contracts has not narrowed anything, and a screen that returns none is usually telling you the truth about the week.

What happens if it goes against you

Most of the time a put expires worthless and the decision is what to do with the cash. The other two are easier to handle if you have thought about them first.

The first is rolling. If the stock has fallen toward your strike and you would rather not own it yet, you can buy back the put and sell another one further out in time, often at the same strike or a lower one. Done for a net credit, this buys time and lowers your break-even a little. It is not a rescue: you are still short a put on a stock that has moved against you, and each roll adds spread cost and extends the commitment. Rolling repeatedly to avoid taking a loss is the most common way a small one becomes a large one.

The second is assignment. If you are assigned, you own 100 shares at the strike with a cost basis of the break-even price. From there the usual next step is selling a covered call against them, which is the second half of the wheel and its own subject. The thing to settle in advance is which outcome you were planning for, because the answer changes which strike you should have sold.

Where the definitions come from

• Options Industry Council: Cash-Secured Put
• FINRA: Options A to Z, the Basics and the Greeks
• OCC: Characteristics and Risks of Standardized Options