Cash secured puts (CSPs) are a popular strategy among UK traders, but they're often misunderstood. Unlike buying shares outright, CSPs generate premium income while obligating you to purchase shares at a predetermined price. However, a true cash-secured put requires 100% of the strike value held in cash—not the reduced margin amounts often confused with this strategy.
Cash Secured Puts: Correct Mechanics
A cash-secured put involves selling a put option while having enough cash to purchase the underlying shares if assigned. For UK single-stock options (1,000 shares per contract), the cash requirement is:
Cash required = Strike price × 1,000 shares
Example: Selling a £5.00 put on Vodafone requires £5,000 in cash reserves. You receive premium income (say £0.05 × 1,000 = £50), but the full £5,000 is locked and unavailable for other trades.
Capital Requirements: CSPs vs Buying Shares
Contrary to common misconception, cash-secured puts are not more capital-efficient than buying shares:
- Buying 1,000 Vodafone shares at £5.00: £5,000 capital required
- Selling £5.00 cash-secured put: £5,000 cash reserves required
The capital requirement is identical. The confusion arises because many traders mistakenly refer to naked short puts (which use margin) as "cash-secured." Naked puts require only 20-50% margin, but carry significantly higher risk.
Tax Implications: Updated 2025/26 Rates
When assigned shares through a CSP and later selling them, you're subject to Capital Gains Tax (CGT). Important update: CGT rates changed in the Autumn 2026 Budget:
- Basic-rate taxpayers: 18% (was 10%)
- Higher/additional-rate taxpayers: 24% (was 20%)
Example: If assigned 1,000 Vodafone shares at £5.00 and later sell at £6.00, your £1,000 gain would incur:
- Basic-rate taxpayer: £180 CGT (18% of £1,000)
- Higher-rate taxpayer: £240 CGT (24% of £1,000)
CGT Annual Exempt Amount
For the 2025/26 tax year, the CGT annual exempt amount is £3,000. This means the first £3,000 of gains are tax-free. Using our Vodafone example:
£1,000 gain - £3,000 exempt amount = £0 taxable gain (no CGT due)
This exemption makes CSPs particularly attractive for smaller gains, as you may pay no CGT at all.
Dividend Considerations
A key difference between CSPs and buying shares is dividend entitlement:
- Buying shares: You receive all dividends
- Selling CSP: No dividends unless assigned
Example: Vodafone pays a 4% dividend (£0.20 per share annually). If you sell a CSP and aren't assigned, you miss £200 in dividends on 1,000 shares. Your £50 premium income may not compensate for this.
When to Use Cash-Secured Puts
Cash-secured puts are best when:
- You want to buy a stock but only at a specific price
- You're comfortable having cash locked up for the option duration
- You want to generate modest premium income while waiting
- You're a beginner learning options (lower risk than naked puts)
Buying shares is better when:
- You want immediate ownership and dividends
- You believe the stock will rise significantly soon
- You need flexibility to sell at any time
- You want to avoid assignment risk
Key Takeaways
1. Cash-secured means 100% cash reserves — identical capital requirement to buying shares.
2. Updated CGT rates: 18% (basic rate) and 24% (higher rate) for 2025/26.
3. No dividends with CSPs unless assigned — factor this into your return calculations.
4. UK contract size: 1,000 shares per option, not 100.
5. CSPs work best as a "limit order with premium" — you get paid to wait for your desired entry price.