Most investors look at cash-secured puts and see one thing: the premium.
You sell a put, you agree to buy a stock you like at a lower price, and in return you get paid up front. Easy enough.
But in a high-rate world like the one we’re in right now, that’s only half the story.
If you set your account up the right way, the same pool of “cash-secured” money can quietly pay you a second stream of income in the background. One trade, two checks.
Most folks miss this. Wall Street doesn’t rush to point it out either—your idle cash at 0.01% is a profit center for them.
Today I want to show you exactly how I structure my own cash-secured puts so that the collateral is working just as hard as the options themselves. I’ll even open the kimono and walk you through four real positions in my Fidelity account right now.
Premium Up Front, Interest in the Background
Let’s start with the obvious part: the option premium.
When you sell a cash-secured put, you’re making a simple deal: you’re willing to buy 100 shares of a stock at a specific price (the strike) on or before a certain date. In exchange, someone pays you a premium today for taking on that obligation.
For example, if I sell a $140 put on Pepsi (PEP), I’m agreeing to buy 100 shares at $140 if I’m assigned. That means I need $14,000 sitting in the account, ready to go. Same idea for any other put you sell.
The premium I collect up front is income stream #1. Most investors stop there.
But here’s where it gets fun.
In my Fidelity account, I currently have four open cash-secured puts:
– A $335 put on Adobe (ADBE), tying up $33,500 in cash
– A $185 put on Hershey (HSY), tying up $18,500
– A $240 put on Salesforce (CRM), tying up $24,000
– A $140 put on Pepsi (PEP), tying up $14,000
Total “cash-secured” collateral: $90,000.
Now here’s the key detail: that $90,000 is not sitting in a dead “cash” bucket earning nothing. At Fidelity, you can choose a core position for your cash, and I’ve set mine to the Fidelity Government Money Market Fund (SPAXX).
In my account right now, SPAXX yields about 3.63% annually.
So while those four puts are open, the dollars securing them are parked in SPAXX. I’m getting paid the option premium and I’m earning money-market interest on the collateral while I wait.
Same dollars. Two jobs.
To put some numbers around that “hidden” second income stream, here’s how much interest that $90,000 could earn if the puts stay open for one, two, or three months, assuming a 3.63% annual yield on SPAXX and simple (non-compounded) math:
| Position | Cash Secured | Interest in 1 Month* | Interest in 2 Months* | Interest in 3 Months* |
|---|---|---|---|---|
| Adobe (ADBE) $335 put | $33,500 | $101.34 | $202.68 | $304.01 |
| Hershey (HSY) $185 put | $18,500 | $55.96 | $111.93 | $167.89 |
| Salesforce (CRM) $240 put | $24,000 | $72.60 | $145.20 | $217.80 |
| Pepsi (PEP) $140 put | $14,000 | $42.35 | $84.70 | $127.05 |
| Total (all four puts) | $90,000 | $272.25 | $544.50 | $816.75 |
*Illustrative only. Assumes a 3.63% annual yield on SPAXX, pro-rated over 1, 2, and 3 months without compounding. Yields change over time, and your results will vary.
That’s $272, $544, or $816 in extra income over those time frames—on top of the premiums I originally collected when I opened the trades.
Again, nothing exotic here. I’m not reaching for yield in some risky bond fund. I’m simply making sure my “waiting room” cash is earning something real while it stands ready to secure my puts.
And this is where a common objection I hear from readers starts to fall apart.
Every now and then someone will write in and say: “Greg, I don’t like cash-secured puts because you don’t own the stock, so you’re missing the dividend.”
Technically, they’re right. While the put is open, I don’t own the shares, so I don’t get the dividend.
But there are three big wrinkles the critics overlook:
First, some of my favorite companies for put-selling don’t pay a dividend at all, or they pay a tiny one. Adobe doesn’t pay anything. Salesforce’s dividend is modest. While I’m waiting for my price, I’d much rather earn a competitive money-market yield on my cash than sit there hoping for a penny-sized payout.
Second, in this rate environment, the yield on a solid money market fund can actually compete with, or even beat, the dividend yield on certain blue chips. If I can earn, say, 3.63% while I wait—and still have the chance to buy the stock at a lower price later—that’s not exactly “missing out.”
Third, if the stock trades down to my strike and I’m assigned, the story continues. Now I do own the shares, and I can collect the dividend (if it pays one), sell covered calls for more income, or both. The same cash that earned a money-market yield while it secured the put now transitions into an income-producing stock position.
So instead of framing this as “you miss the dividend,” I look at it as staging my capital:
Premium today. Interest while I wait. Dividend and covered-call income later, if I’m assigned.
The Takeaway
There’s nothing wrong with plain-vanilla dividend investing—I do plenty of that, too. But if you’re willing to get a little more tactical, cash-secured puts can turn the same dollars into a multi-stage income machine.
Here’s the simple checklist I use:
1. Stick with high-quality companies I’d be happy to own if I’m assigned.
2. Sell cash-secured puts at prices I’d genuinely like to pay.
3. Make sure my “cash-secured” funds are parked in a high-yielding core position (like a money market fund), not snoozing at 0.01%.
Do that, and suddenly a basic income trade turns into something much more powerful:
– You get paid up front via the option premium.
– You get paid while you wait via interest on the collateral.
– You still have the opportunity to own a great business at a discount and collect dividends down the road.
Most investors look at cash-secured puts and see a way to “maybe” buy a stock cheaper.
I look at them and see a way to run my cash like a business—where every dollar has a job, and preferably more than one.
If you’re already selling puts, it might be worth logging into your account today and asking one simple question:
Is my collateral actually earning anything?
If the answer is no, that’s one of the easiest income upgrades you can make—without changing a single stock in your portfolio.
Invest accordingly!
Greg Patrick
