UBS has marketed a so-called “Yield Enhancement Strategy” (YES) to certain of its clients as a safe way to increase the return on their money. Unfortunately, though marketed as low-risk, their Yield Enhancement Strategy was quite risky and ended up causing some investors to lose money. What was supposed to increase wealth ended up destroying it.
Investors may have been steered into this strategy without understanding the risks involved, and could be eligible to recover some of their losses through FINRA arbitration.
The “Iron Condor” Options Scheme
The UBS Yield Enhancement Strategy was a complex scheme designed to earn clients more yield at a time when the markets were relatively flat and interest rates were low by investing in options for the S&P 500 index (SPX) in a strategy called an “iron condor”.
Options are financial contracts between buyers and sellers. The two basic components of options are puts and calls. A put option is a contract that gives the owner the right to sell the underlying asset at a certain price (the strike) by a predetermined expiration date. A call option gives the owner the right to buy the underlying asset at a certain price at a certain time. The buyer pays a premium fee for the right to buy or sell an asset with an option contract.
The complicated iron condor strategy (so called because the shape of the profit and loss graph resembles a large bird such as a condor) involves investing in a series of vertical put and call spreads with the same expiration date and four different strike prices. The strategy isn’t going to make anyone a huge yield if it’s successful. It’s just intended to hedge risk and earn a small return.
Yield Enhancement Turns Yield Destroying
The iron condor strategy pays off when the underlying asset, SPX, doesn’t fluctuate significantly in price and the options expire worthless, allowing the investor to profit from the premium they were paid.
If volatility had remained low, the strategy may have worked as marketed. Unfortunately, for many it didn’t and some investors who used the Yield Enhancement Strategy lost as much as 20%. Brokers who recommended the strategy may have failed to disclose the risks involved. Others allegedly believe that the strategy may not have been properly implemented.
Fortunately, investors may be able to recover some of their losses resulting from a UBS Yield Enhancement Strategy by making a FINRA arbitration claim. The strategy may not have been suitable for investors needs.
Silver Law Group is investigating cases of investors who have substantial losses from UBS Yield Enhancement Strategy investments. Some clients of UBS have already started this process.
Silver Law Group is a nationally-recognized securities law firm headquartered in South Florida representing investors worldwide with their claims for losses due to securities and investment fraud. The firm has successfully recovered multi-million dollar awards for its clients through securities arbitration and the courts. To contact Scott L. Silver to discuss your legal matter, call toll-free (800) 975-4345 or e-mail him at SSilver@silverlaw.com.