UBS Makes 3 Suggestions For Investing In Volatile Market


UBS came out with a report on Friday that included suggestions for how to invest in the time of Covid-19.

The market has been extremely volatile since the outbreak of Covid-19 in the US. This has caused investors to act on fear and sell stocks into negative headline-driven volatility spikes. UBS suggest that home traders should buy stocks defensively, according to a note published on Friday.

UBS pointed to this week's jobless claims number and massive financial support from the world's governments and added that there "appears to be no political appetite for renewed national lockdowns," which bodes well for the economic recovery to continue on.

It would be logical to think that negative headlines will likely continue and according to UBS, investors should "harness market turbulence to enter defensively" instead of "shying away from volatile markets." 

Here are three ways an investors can defensively enter the stock market:

1. "Averaging in for risk assets."

UBS suggests using dollar cost averaging and putting your money in over time. It will protect against the volatile swings in price of your favorite picks. The firm recommends investors establish a set schedule to put cash into the market and only accelerate if there is a 5% to 10% sell-off of your pick.

2. "Consider a put-writing strategy."

A put strategy entails an investor selling puts (option contract) for a stock. The investor sets a strike price lower than the stock is currently trading in the market along with a specific date of execution. The investor collects a premium for writing the put, and two outcomes can occur: either the option expires worthless and the investor keeps the premium, or the market falls below the price of the put and the investor must buy the stock at the strike price.

This is a way to buy low and make money in the mean time if the stocks don't drop.

3. "Use structured investments."

Rather than directly purchasing options, "some investors may be willing to fully commit their cash upfront in exchange for a structured investment that provides asymmetric exposure to the market, for example, levered upside participation, a degree of capital protection, or a fixed coupon payment until maturity."

"So for investors unwilling to commit all their capital at once, plenty of other strategies exist to ensure that investors do not put the chances of meeting their long-term financial goals at risk," UBS concluded.

There also a variety of Electronically Traded Funds (ETF) that mimic gains and losses in all indexes that you can invest in like a stock.


Economics, Finance and Investing