If you’re an EU resident looking to invest in US-domiciled ETFs, you may be out of luck. Since 2018, EU legislation has made it difficult for EU retail investors to trade US-registered ETFs due to a lack of compliance with the Undertakings for Collective Investment in Transferable Securities (UCITS) directive. This regulation requires that ETFs be authorized and regulated by the EU in order to be sold to EU retail investors.

Unfortunately, many US-domiciled ETFs have not complied with the necessary regulations and are therefore not authorized for sale to EU retail investors. As a result, popular funds like SPY, IVV, VOO, QQQ, IWM, JEPI, VT, and many others, may be unavailable to you. This limitation can be frustrating for EU investors who are looking to diversify their portfolios with US securities.

While there may be some European alternative ETFs that are equivalent to their US counterparts, it’s important to note that European-domiciled ETFs have their own drawbacks. For instance, these ETFs tend to have higher management fees than their US counterparts, which can negatively impact your investment returns over time. Furthermore, some investors may find that European ETFs have a more limited selection of investment opportunities compared to US ETFs.

Let me clarify that despite common misconceptions, it is not illegal for European retail investors to acquire foreign ETFs. The regulation only impacts brokerages that are not authorized to market such products to regular retail investors. However, there are still several options available for European retail investors to acquire shares of US-listed ETFs or gain exposure to them. For example, you can open a brokerage account using an address located outside of Europe or get an exemption (treated as “elective professional client“).

While these solutions may require a bit more effort, there is another option worth mentioning. My favorite way to gain exposure to US ETFs is through options. Unlike direct investment in US ETFs, the sale of options on these ETFs is not restricted by EU regulations. European brokers can offer their clients the ability to buy and sell put and call options on a range of US ETFs, which typically expire weekly, monthly, or quarterly.

By selling a cash-secured in-the-money put option shortly before its expiration, you can indirectly purchase the underlying US ETF in multiples of 100 shares (as each option contract requires the purchase and sale of 100 shares). I personally use this method to acquire stocks and ETFs, not only to bypass UCITS directive restrictions, but also because it offers additional benefits. One such benefit is the ability to collect an extra premium for selling the put option, which can reduce your cost basis!

To help you understand how this strategy works, let’s say you want to buy shares of SPY (SPDR S&P 500 ETF) that’s currently trading at $400 per share. You could sell one cash-secured in-the-money put option for $11 with a strike price of $410 that expires in one day. By selling this option, you receive a premium of $1,100 ($11 x 100 shares), and in return, you commit to buying 100 shares of the ETF at a price of $410 per share if the option is exercised. Since the option is in-the-money and expires the next day, there is a high probability of being assigned the shares.

If the SPY price will be above the strike price of $410 at expiration, you keep the $1,100 premium and are free to sell another put option. However, if the SPY price remains below $410, you will be assigned the shares at that price and will have to purchase them. But remember, you have already received $1,100 in premium, which lowers your effective purchase price to $399 per share ($410 strike price – $11 premium received). This way, you can acquire shares of the ETF at a discount and earn a premium while you wait for the option to expire.

Not all ETFs have a liquid options market, so prioritize liquidity when selecting an ETF to trade. Additionally, you may need to request additional permissions from your broker in order to trade options. If your ultimate goal is to acquire shares of an ETF, please avoid selling naked options and always ensure that you have sufficient cash in your account to cover the cost of purchasing 100 shares. This will help you avoid any unpleasant surprises and ensure that you are able to take full advantage of the benefits of this strategy.

While selling in-the-money put options is a great method to acquire ETF shares at a lower price, it’s not the only strategy worth exploring. An alternative approach is buying long-term deep in-the-money call options, also known as LEAPs. Additionally, you could sell out-of-the-money put options and manage them actively to generate potential income. Other advanced strategies, such as creating a synthetic stock replacement position, can also be considered. Stay tuned for future articles where I’ll cover these advanced strategies in more detail.