Cash-Secured Put Checklist

A systematic checklist prevents mistakes and keeps you disciplined. Before you click "sell to open" on any put, run through this complete decision framework to make sure everything aligns with value investing principles.

TL;DR

• Pre-trade checklist: Nine critical items to verify before every put trade
• Company quality gates: Don't skip fundamental analysis just because premiums look good
• Strike and timing rules: Mathematical framework for selecting strike prices and expiration dates
• Risk management checks: Position sizing and portfolio balance verification before committing cash
• Record keeping: Document your thesis so you can learn from every trade

The Complete Pre-Trade Checklist

Print this out. Check every box before selling a put. If you can't check all nine items, walk away and find a better opportunity.

1. Company Quality Analysis

Business fundamentals:

• Free cash flow is positive and stable (last 3 years)
• Debt-to-equity ratio is under 1.0 (or under 2.0 for utilities/real estate)
• Revenue growth or stability over 5+ years
• Clear competitive advantage (brand, network effects, scale, patents)
• Management track record of capital allocation

Use the WSY app to verify these metrics quickly. If any item fails, stop here.

2. Valuation Check

Fair value calculation:

• Calculated fair value per share using at least two methods (DCF, earnings yield, P/E comparison)
• Current stock price is at or above fair value (you're not buying overpriced)
• Strike price is 10-25% below fair value (margin of safety built in)
• Can explain valuation in three sentences to someone unfamiliar with the company

Example check:

• Fair value: $60
• Current price: $48 (20% discount, good)
• Strike considering: $44 (27% below fair value, excellent margin of safety)
• ✓ Passes valuation check

If the strike price is above fair value, reject the trade immediately.

3. Options Quality Check

Liquidity and pricing:

• Average daily options volume is 500+ contracts
• Bid-ask spread is under 10% of the bid price
• Open interest on the strike you're considering is 100+ contracts
• Multiple expiration dates available (flexibility to roll if needed)

Example:

• Strike $45 put, 30 days out
• Bid: $1.80, Ask: $2.00 (spread is $0.20 or 11%, slightly wide but acceptable)
• Volume: 850 average
• Open interest: 2,400 contracts
• ✓ Passes liquidity check

Illiquid options trap you. Don't compromise on this check.

4. Timing and Expiration

Calendar considerations:

• No earnings announcement before or during expiration week
• No major company events pending (mergers, FDA decisions, major lawsuits)
• Expiration is 30-60 days out (sweet spot for time decay and premium)
• Not crossing any ex-dividend dates you care about

Mark these dates on your calendar before placing the trade. Earnings surprises destroy even good put strategies.

5. Strike Price Selection

Mathematical framework:

• Strike price is at or below your target entry price
• Strike price represents 10-25% discount to fair value
• Premium collected is 1.5-3% of the backing cash required
• Effective entry price (strike minus premium) is compelling

Calculation example:

• Target entry: $44
• Strike selected: $45
• Premium: $1.80
• Effective entry: $43.20 ($45 - $1.80)
• Discount to $60 fair value: 28%
• Premium as % of backing: 4% ($1.80 ÷ $45)
• ✓ Passes strike selection check

If the premium is less than 1.5%, consider waiting for higher volatility or choosing a closer strike.

6. Position Sizing

Cash management:

• Have 100% cash backing in account ready (never use margin)
• This position represents under 20% of total portfolio value
• Already have puts on less than 5 different companies
• Can handle assignment on all existing puts simultaneously if needed

Portfolio example:

• Total portfolio: $100,000
• Cash available for new puts: $60,000
• Existing puts backing: $40,000 (on 3 companies)
• New put requires: $9,000 backing
• After this trade: $49,000 used, $51,000 available
• ✓ Passes position sizing check

Never commit more than 60-70% of your portfolio to put-backing cash. Keep reserves for opportunities.

7. Personal Ownership Check

The gut check:

• Would be happy owning 100 shares at the strike price
• Can hold this stock for 2+ years if market stays down
• Comfortable explaining this investment to family
• Not selling puts just to "put money to work" (impatience)

If you hesitate on any of these, the trade fails. Your gut knows better than greed.

8. Market Condition Assessment

Environment check:

• VIX is under 35 OR you're reducing position size if above 35
• Not selling maximum positions during a market crash (keep dry powder)
• This stock isn't down 50%+ in 3 months without a clear recovery thesis
• Overall market conditions don't suggest extreme risk ahead

During panics (VIX 40+), cut your normal position sizes in half and keep more cash in reserve.

9. Trade Documentation

Record keeping before you trade:

• Written down your thesis: Why you want this stock at this price
• Recorded fair value calculation and method used
• Noted what would make you close early (company deterioration signs)
• Set calendar reminders for expiration week

Sample thesis note: "Selling $45 put on Steady Consumer, expires Dec 15. Premium $180. Fair value $60 based on 10% FCF yield and 5-year average P/E of 12. Company has 20-year track record, manageable debt, and brand moat. Will close early if debt-to-equity exceeds 0.5 or FCF goes negative. Would happily own at effective $43.20 entry."

This takes two minutes but makes you 10× better at reviewing trades later.

The Quick Reference Card

Can't remember all nine checks? Use this shortened version once you're experienced:

Company:
✓ Quality business I understand
✓ Fair value calculated and verified

Price:
✓ Strike = 10-25% below fair value
✓ Premium = 1.5-3% of backing cash

Timing:
✓ No earnings before expiration
✓ 30-60 days out

Portfolio:
✓ 100% cash backing available
✓ Position under 20% of portfolio

Gut:
✓ Happy to own at this price
✓ Can hold 2+ years if needed

All items checked? Proceed. Any item unchecked? Find another trade.

Common Checklist Failures and How to Respond

Failure: "Premium is only 1.2%, below my 1.5% minimum"
Response: Wait for higher volatility, choose a closer strike, or skip this opportunity. Don't lower your standards.

Failure: "Earnings are in 10 days"
Response: Either close your timeframe to before earnings (sell 7-day put) or wait until after earnings. Never cross earnings.

Failure: "I can't calculate fair value confidently"
Response: Don't sell the put. Do more research or move to a company you understand better. Use the WSY app to help with valuation.

Failure: "This would be 25% of my portfolio"
Response: Reduce position size. Sell puts on 50 shares worth instead of 100, or split across two companies.

Failure: "I'm not sure I want to own this for 2 years"
Response: This is the clearest no. Find a company you'd be excited to own long-term.

What Could Go Wrong?

Checklist fatigue: After a few successful trades, you start skipping items. "I know this company, I don't need to check fundamentals again."

Mitigation: Companies change. Run the full checklist every time, no exceptions. The one time you skip it will be the time something changed. Make it a ritual, not a burden.

Analysis paralysis: The checklist is so comprehensive you never pull the trigger on any trade.

Mitigation: The checklist should take 10-15 minutes for a company you've analyzed before. If it takes an hour, you're overthinking. Trust your preparation and move forward once boxes are checked.

Justifying bad trades: You really want to do a trade, so you fudge the checklist. "Fair value is $45, strike is $44, close enough to my 10% rule."

Mitigation: The checklist exists to protect you from yourself. If you're rationalizing, you already know the trade is wrong. Walk away. Better opportunities always come.

Next Steps: Build Your Personal Checklist

• Print this checklist or create your own version
• Add company-specific notes based on your analysis style
• Test it on your last three put trades (did they pass all checks?)
• Commit to running it before every trade for the next 20 trades
• Track which checklist items save you from bad trades (you'll see patterns)
• Review and refine the checklist quarterly based on experience
• Share your checklist with an accountability partner or trading group
• Study Strike Price Selection for deeper strike choosing guidance
• Review Stock Selection Criteria to strengthen company analysis

A good checklist feels like a weight off your shoulders, not a burden. It means you can trust your decisions because you followed a proven process. The best put sellers are systematic, not spontaneous. Keep the riddim steady with disciplined execution, and your results will show it.