You are not alone. Investment loss claims over UBS “Yield Enhancement Strategy (YES)” have poured in as market volatility has produced losses that could total over $1 billion.
The Sonn Law Group is investigating whether UBS brokers and advisors misrepresented the risks of the Yield Enhancement Strategy (YES) to investors. When the market experienced extreme volatility both in February 2018 when the DOW plunged 1,175 points, and more recently because of the COVID-19 pandemic and the oil price wars, investors suffered severe losses, calling into question whether the risks of these investments were properly conveyed by UBS represetatives.
If your UBS stockbroker or investment advisor recommended investments in the “Yield Enhancement Strategy” or UBS “Iron Condor” Yield Enhancement Strategy, you may be able to recover compensation by filing a FINRA arbitration claim. We encourage you to contact Sonn Law Group today for a free, no obligation investment loss case evaluation.
Recent News Related to UBS YES Losses
- Robert Perlman, Broker for UBS Financial, Named in Customer Dispute Related to UBS Yield Enhancement Strategy (YES) (5/22/2020)
- Christopher Tolman, Broker for UBS Financial Services, Accused of Recommending Unsuitable Investments (1/30/2020)
- Gordon Harper, Broker for Merrill Lynch, Sued for CYES Losses (1/2/2020)
- Sonia Attkiss of UBS Financial Services Faces Investor Complaints Related to UBS Yield Enhancement Strategy Losses (7/31/2019)
- Gerard Joseph Costello of UBS Financial Services Recently Faced an Investor Complaint Over UBS YES Strategy Losses (7/31/2019)
Yield Enhancement Strategies (Yes): What They Are and Why They Fail
A yield enhancement strategy (YES) is a complex investment strategy that has been offered to investors by representatives at a number of major brokerage firms, including:
- UBS Financial Services;
- Credit Suisse;
- Morgan Stanley; and
- Merrill Lynch.
While yield enhancement strategies, including the UBS YES strategy and the Iron Condor strategy, are often touted as being a low-risk way for investors to generate additional returns, the reality is far more complicated. YES strategies are risky and may expose investors to significant losses.
Yield Enhancement Strategies: Understanding the Basics
The term ‘yield enhancement strategy’ is actually somewhat misleading. Income is not technically being generated through this type of trading strategy. Instead, YES strategies require investors to purchase a number of related stock options.
When the strategy works, the investor will make a small ‘premium’ — meaning they will be compensated for the risk that they took in obtaining these options.
When the strategy fails, the investor will suffer sharp losses — often these losses are a multiple of the potential gains. In fact, by their very structure, yield enhancement strategies are designed to produce small gains most of the time and large losses some of the time.
YES Strategies Rely on a Narrow Market Range
Yield enhancement strategies are inherently complex. They involve investing in overlapping stock options — including both puts and calls. In other words, with a YES strategy an investor is taking both long and short positions in the same security over the same period.
The selected short price and the selected long price will produce a “range”. As long as the underlying stock/security stays within that range, the investor will generate a relatively modest premium (return). However, should the stock/security close outside of that range, which can happen, then the investor will suffer considerable losses. Put another way, this type of strategy is simply a bet on low volatility.
The bottom line: Yield enhancement strategies generate small gains in stable market conditions. In volatile market conditions, these strategies can expose investors to heavy losses.
Yield Enhancement Strategies Fail During Periods of High Volatility
Yield enhancement strategies fail during periods of high market volatility. As was described, the YES strategy only produces a small profit for investors when the underlying security remains within a pre-specified range. It will cause much larger investment losses when it breaks out of that range. Of course, during volatile market conditions, securities prices are far more likely to fall outside the limits of the range.
This is not merely theoretical: YES strategies failed in late 2018. During that time period, market volatility crushed many unsuspecting investors who were sold yield enhancement strategies by their brokerage firms. For reference, not only was December of 2018 the worst December for the Dow Jones Industrial average since the Great Depression, but the month also produced the single largest one day point gain in the 120+ year history of the index.
These Strategies are Unsuitable for Many Investors
Unfortunately, YES strategies are often marketed to investors as a safe, conservative, and reliable way to generate some additional income. Too many brokers and brokerage firms simply fail to disclose the true extent of the risks associated with this type of complex trading strategy. In volatile market conditions — that being the time when many investors desire safety and protection— yield enhancement strategies fail. They can cause large, often unexpected, investment losses. As such, YES strategies are unsuitable for most investors.
UBS Financial Ends Yield Enhancement Strategy (YES) Program in August 2019
In August 2019, UBS Financial Services removed the Yield Enhancement Strategy (YES) program from its website, a sign that the program is no longer issued by the firm.
The YES strategy is an options strategy that was marketed by UBS, as well as many other large brokerage firms, as a reportedly safe method to generate supplemental portfolio income.
The strategy involved the use of an “Iron Condor” options strategy, which involves selling both near-the money and out-of-the money put and call options against the S&P 500 index, NASDAQ and other primary indices.
The S&P 500 is a stock index based on the 500 largest companies whose stock is listed for trading on the NYSE or NASDAQ.
The premium value of an option is determined by (1) time (i.e., maturity) and the (2) strike price. If the option has a shorter maturity, there is theoretically less time for an investor to navigate short-term volatility, leading to more pronounced swings in the market value of the option.
Conversely, if the option has a longer maturity and the options are further out-of-the-money, short-term volatility may not cause significant changes in the market value of the option.
In a stabilized market environment, some or all of the options will expire and the investor collects the premiums. Conversely, in a volatile market, the premiums associated with the options positions will spike, creating margin calls, closure of options positions at a loss and/or the exercise of the underlying options.
Discuss Your Options for UBS YES Strategy Loss Recovery with an Attorney
The UBS Yield Enhancement Strategy or YES Strategy was marketed to many high net worth investors across the United States as a safe, low-risk way to increase their investment returns. This complicated investment strategy — which was not always well understood by investors — performed poorly in volatile market conditions of late 2018.
Sonn Law Group has a great deal of experience in representing investors who have sustained losses due to the negligence or misconduct of their broker and/or brokerage firm, including cases involving complex options strategies. We will aggressively pursue claims to recover your Yield Enhancement Strategy or other investment losses.
If you are looking for an investment fraud attorney to review your rights and options, the investment fraud lawyers at Sonn Law Group represent individual and institutional investors who have lost money as a result of unsuitable investment advice, negligent advice, investment fraud or stockbroker misconduct. Our attorneys have helped to recover more than $250 million in assets lost to investment fraud, securities fraud, Ponzi schemes, and stockbroker misconduct. To set up a free, no obligation review of your case, please call us now at 844-689-5754 or contact us online.