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How to use cash-secured puts to buy UBS stock (or earn income while you wait)
Koen Hoorelbeke
Investment and Options Strategist
Note: This is marketing material.
How to use cash-secured puts to buy UBS stock (or earn income while you wait)
If you’re interested in buying UBS shares - but only at a better price - there’s a simple, conservative strategy that lets you “get paid to wait.” It’s called a cash-secured put, and it may be the most practical way for long-term investors to either buy UBS at a discount or earn a bit of extra income if the shares don’t get cheaper.
What is a cash-secured put?
Let’s keep this simple:
- You agree to buy UBS shares at a price you choose (“strike price”) if the shares drop to that level by a certain date.
- In return for this promise, you get a cash payment up front (the “premium”). This is yours to keep, whatever happens next.
- You must keep enough cash in your account to buy the shares if needed. That’s why it’s called “cash-secured.”
In plain English:
It’s a way to try and buy UBS shares at a discount—or get paid if you don’t.
Important note: The strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.
A real-world example with UBS
UBS is currently trading at about €26 (see chart below).
Suppose you’d be happy to buy UBS shares, but only if they fall to €25.
You can sell a put option with a €25 strike price, expiring on 20 June 2025.
- You receive a payment: for example, CHF 43 (around €44) up front for selling this option.
- You set aside €2,500 in your account (enough to buy 100 shares at €25 each).
- If the price never drops to €25, you keep the €44 as extra income.
How could this play out?
| At option expiry | UBS price | What happens | Result |
|---|---|---|---|
Stays above €25 | e.g. €26.10 | You keep the €44 premium, no shares bought. | €44 profit (1.76% yield on €2,500)* |
Below €25 (assigned) | e.g. €24.50 | You must buy 100 shares at €25 each. | Shares cost €25 minus €0.44 = €24.56 ea. |
Drops much lower | e.g. €22.00 | You buy at €25, but stock is worth €22. Loss on paper. | Paper loss offset by €44 premium. |
*Approximate yield, before fees or taxes.
- If UBS stays above €25:
You simply pocket the €44. This is like earning a bit of interest on cash that was “waiting to invest.” - If UBS dips below €25:
You buy at €25, but because you received €0.44 per share in premium, your effective cost is €24.56 per share. This is cheaper than today’s price. - If UBS falls much further:
You still buy at €25. Like any stock purchase, you have a loss if the price drops, but you got paid €44 to take the risk.
What are the risks?
- You might have to buy shares even if the price keeps dropping:
The worst-case is the same as buying the stock outright at your agreed price, minus the premium. - Your cash is locked up:
Your €2,500 is reserved until the option expires. You can’t use it for other investments in the meantime.
Why might this appeal to a cautious, long-term investor?
- You choose the price you’re willing to pay.
- You get paid (the premium) for waiting.
- The risk is clear: you might end up owning UBS at your chosen price, and only if the price drops.
Key definitions
- Put option: A contract where you agree to buy shares at a set price if assigned. (You are the seller, so you must buy if the option is exercised.)
- Strike price: The price you agree to buy the shares at.
- Premium: The cash payment you receive for selling the option.
- Assigned: If UBS drops below the strike price, you must buy the shares.
- Expiry: The date this agreement ends.
Frequently asked questions (FAQ)
Q: Will I lose money if UBS falls hard?
A: Yes. Just like owning the stock, you will have a loss if the price falls well below your net purchase price (strike minus premium). But you do get paid up front to take the risk.
Q: Can I change my mind before expiry?
A: Yes, you can close (buy back) the put option before expiry, but the price you pay will depend on UBS’s share price at that time.
Q: Is there a minimum amount required?
A: Each put contract covers 100 shares, so make sure you have enough cash for the full amount.
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