CSPs vs Covered Calls

Both strategies let you earn 1-3% monthly income. But which one fits your situation? Let's compare them side by side so you can choose the right path.

The Core Difference

Cash-Secured Puts let you use your cash to earn income while waiting to buy stocks. You're acting like an insurance company, collecting premiums by promising to buy stocks at specific prices.

Covered Calls let you use stocks you already own to generate extra income. You're also acting like an insurance company, but this time you're collecting premiums by promising to sell your stocks at specific prices.

Both strategies put you on the profitable side of options trading, just like an insurance company. The key difference is your starting position: cash versus stocks.

Cash-Secured Puts: Income from Cash

How It Works

• You have $10,000 in cash
• Sell a put at $100 strike on a stock trading at $105
• Collect $200 premium
• If assigned, you buy 100 shares at $100

When to Use

✅ You have idle cash earning little interest
✅ You want to own the stock at a lower price
✅ The stock is currently too expensive
✅ You're waiting for a better entry point

Pros

• Generate income while waiting to buy
• Get paid to set your buy price
• Don't need to own the stock yet
• Lower capital requirement than buying outright

Cons

• Must have cash set aside (can't use it elsewhere)
• Miss out if stock rallies significantly
• Still have downside risk if assigned

Covered Calls: Income from Stock

How It Works

• You own 100 shares of stock at $100
• Stock now trades at $105
• Sell a call at $110 strike
• Collect $150 premium
• If assigned, you sell shares at $110

When to Use

✅ You already own the stock
✅ You're okay selling at the strike price
✅ The stock has gone up and you want income
✅ You expect sideways or modest upside

Pros

• Generate income from existing holdings
• Still collect dividends while selling calls
• Can sell calls repeatedly on same shares
• Lower your cost basis over time

Cons

• Must own the stock (capital tied up)
• Miss gains above strike price
• Still have full downside risk if stock drops

Side-by-Side Comparison

The Wheel Strategy: Use Both Together

Many traders combine these strategies in sequence:

Step 1: Sell cash-secured puts

• If assigned → Move to Step 2
• If not assigned → Keep premium, repeat

Step 2: Sell covered calls on assigned shares

• If called away → Return to Step 1
• If not called → Keep premium, repeat

This creates a continuous income cycle using both strategies.

Which Should You Choose?

Choose Cash-Secured Puts If:

• You have cash but don't own the stock yet
• You want to get paid while waiting for better prices
• You're building positions gradually
• You prefer the flexibility of cash

Choose Covered Calls If:

• You already own shares
• You want income from existing holdings
• You're okay potentially selling at strike price
• You want to lower your cost basis

Use Both If:

• You want maximum income generation
• You're comfortable owning and selling the stock
• You can dedicate capital to one strategy
• You want a systematic approach

Real Example: AAPL Trade

Scenario: Apple (AAPL) trades at $180

Cash-Secured Put Approach:

• Sell $170 put, 30 days out
• Collect $300 premium
• Set aside $17,000 cash
• Return: 1.76% in 30 days if not assigned

Covered Call Approach:

• Already own 100 shares at $170
• Sell $190 call, 30 days out
• Collect $250 premium
• Return: 1.47% in 30 days if not called away

Tax Considerations

Both strategies have similar tax treatment:

• Premiums from expired options = short-term capital gains
• If assigned/called away, premium affects cost basis
• Holding periods matter for long-term vs short-term gains

Consult a tax professional for your specific situation.

How PutHouse Handles Both

PutHouse automates both strategies on stocks in your portfolio:

Cash-Secured Puts: Executes based on predefined rules when you have available cash

Covered Calls: Sells calls on shares you hold in your portfolio

Active Management: Automatically closes options before expiration to avoid assignment when possible

Execution is automated, but you maintain full control. Works only on stocks you select, and you can pause or stop anytime.

Risk Disclosure: Options trading involves substantial risk. Automated execution does not eliminate risk or guarantee profits. You can lose money trading options.

Learn how PutHouse works →

Getting Started

Start with Cash-Secured Puts if: You're new to options and have cash available. It's simpler and doesn't require owning stock yet.

Add Covered Calls when: You get assigned shares or already own positions. Layer in income on your holdings.

Graduate to The Wheel when: You're comfortable with both and want maximum income generation.