One type of investment strategy that’s been rising in popularity among big investment companies is the UBS yield enhancement strategy or “YES” strategy. The yield enhancement strategy definition is a form of investing in which a broker sells call or put options to improve returns in comparatively stable or flat markets. While the YES strategy is often pitched as a “secure” alternative for investors seeking consistent returns, the reality is that the investment products purchased and sold under YES strategies are intricate and risky, and unexpected market turbulence can easily lead to substantial losses. This lack of disclosure could constitute fraud, actionable by an attorney.

UBS Yield Enhancement Strategies

Several investment companies have offered yield enhancement plans to individual investors in recent years, and many, if not all, are continuing to offer you these risky investments. Currently, we are conscious of these firms offering YES approaches through managed accounts, structured notes, funds, and other broader investment plans and products:

  • Credit Suisse
  • Merrill Lynch
  • Morgan Stanley
  • UBS Financial Services

Recovery Options for Investors Who Lost Money in a Yield Enhancement Strategy

For individual investors who have lost money in yield enhancement strategy investments, financial compensation may be accessible through the practice of FINRA arbitration.¬† To recover investment losses in FINRA mediation, investors have to have the ability to verify, through attorneys, that their losses will be the result of investment fraud. All investments carry risk, and losing money in a yield enhancement strategy — or another investment — isn’t necessarily indicative of fraud. Nevertheless, on account of the extraordinary sophistication and unique risks related to iron condors and other YES strategies, we feel that individual investors who have lost money in these kinds of investments will be entitled to recover their losses in many cases.

If you lost money with the UBS Yield enhancement strategy, call the Investment Fraud Lawyers at 1-888-628-5590 for a free consultation.¬† They help investors recover funds with a “No Recovery, No Fee.”

Yield Enhancement Strategy

What’s Investment Fraud?

The definition of “investment fraud” is much broader than many individual investors recognize. While many people envision boiler room scams from the movies (and these certainly exist in real life), many cases of investment fraud involve practices that are much more mundane.

For purposes of FINRA arbitration, investment fraud entails a wide assortment of improper broker and advisory practices that result in investors unknowingly making poor investment choices. While this includes brokers’ and advisers’ intentional attempts to profit at investors’ expense, it also includes conditions where investors receive unsuitable recommendations or are not provided with the information they need to have to protect themselves. This simple lack of risk disclosure is considered investment fraud and could result in class action lawsuits.

The Risks of “Yield Enhancement Strategy” or “YES” Strategy Investing

Yield Enhancement strategies are risky since they rely on consistent stability in the market — something which is virtually non-existent in the long run. The goal of these strategies is to earn a profit when a stock index, most commonly the S&P 500, stays within a particular range which is marked by the “strike prices” of options bought at either end of this range. When the options expire without attaining their strike costs (one alternative is purchased with a strike price on top of the range, and the other is purchased with a strike price at the base), then the buyer — theoretically — earns a profitable return from the option premiums.

Considering the “covered” option, the investor holds an offsetting position in the asset (this type of corporate stock) underlying the alternative. This is known as a “long” position, and the long position helps offset the probability of the “short” position of the alternative. With an “uncovered” option, the investor doesn’t hold this long position; so, if the purchase price of the underlying asset goes down substantially, the “short” position (the uncovered option) is essentially an unmitigated risk.

With a yield enhancement plan, the investor holds an uncovered short position if the underlying asset drops in value and an uncovered long position in the event that the underlying asset increases in value. While the investor can exercise one of the options to purchase the underlying stock for value if the strike price is fulfilled, this inherently means buying at a time of volatility and as a result of an unexpected market swing. This is inherently risky, and it usually means that investors who are in undesirable places with YES plans essentially have two options: (i) to allow the options expire and accumulate nothing, or (ii) to buy or short a stock when many people would consider it to be ill-advised.

Iron Condor

Iron Condor

Lots of investors have incurred unnecessary investment losses connected with an investment plan at UBS (along with other competing firms) referred to as a “Yield Enhancement Strategy.”

This investment strategy involves an options plan that was promoted by some as a safe approach to enhance the yield (or income flow) from an investment portfolio. Unfortunately, investors are now discovering unexpected and unnecessary investment reductions in this allegedly safe approach.

UBS Financial Services (along with other competing companies) represented to investors that a Yield Enhancement Strategy may provide a low-risk way to create additional income. However, the investment plan was fraught with danger which, in many cases, ultimately resulted in unexpected and unnecessary losses. In case you’ve experienced investment loss due to this strategy, contact our broker negligence law company today.

The Yield Enhancement Strategy involves an intricate “iron condor” kind of options investment plan which involved buying and selling both put and call options on the S&P 500 index. An iron condor options investment strategy consists in writing a collection of alternative contracts, typically at the same time or around precisely the same period. The iron condor investment strategy generally includes writing two close money alternatives which are short and buying two more in-depth out-of-the-money option contracts which are long.

Volatile Markets Produce Extra Risks

The Yield Enhancement Strategy was typically marketed in a manner suggesting that, provided that there was hardly any market volatility, this was an investment strategy that could generate additional income. However, when the stock market becomes more volatile, as it did from the 4th quarter of 2018 (and in particular in December 2018) with rapid and substantial increases and decreases, the investment strategy can cause significant unexpected and unnecessary investment losses for some investors.

This investment plan may have been (or may have become) unsuitably insecure for some investors, especially if it was advocated as a relatively safe or conservative income-producing investment plan. It’s likely that the financial advisor or company that advocated this investment strategy had failed to create adequate risk disclosures to investors concerning this investment strategy, or might have failed to take reasonable steps to avoid unnecessary investment losses as the market became more volatile.

In what seemed to be a reduced rate of interest, low volatility market and investment environment, several brokerage companies and financial advisors, such as well-known wirehouse firms Merrill Lynch, Morgan Stanley, Wells Fargo, and UBS (among others), have reportedly recommended various options investment plans to their investor clients as allegedly safe and efficient investment strategies to improve income from their investment portfolios. But, when stock markets become volatile, these investment plans can quickly spiral into sudden investment reductions for retail investors. Cases of a volatile market in February 2018 and the 4th quarter of 2018, might have resulted in unexpected and unnecessary investment reductions for some investors.

Prestigious investment plans, especially those strategies involving naked options, seem to have been advocated to investors by such well-known brokerage firms as Merrill Lynch, Morgan Stanley, Wells Fargo and UBS (among others). While these alternative investment plans have allegedly presented some retail investors with opportunities to generate some additional income by participating in a relatively complex alternatives investment plan, some of these investment strategies were often fraught with sudden and/or undisclosed risk. One such options strategy, marketed in certain cases as a yield enhancement strategy (or “YES”), entails writing so-called iron condors through S&P 500 derived alternative contracts. On occasion, investors are steered into these plans searching for the alternative premium income, without completely understanding the investment strategy or fully receiving a disclosure (or comprehension regarding) the material and substantial risks associated with such an options trading strategy.

When it comes to yield enhancement options strategies, maybe the most commonly used financial instrument is the exceptionally well-known S&P 500 Index (“SPX”), a stock market index based on the 500 largest companies with shares listed for trading on the NYSE or NASDAQ. The Chicago Board Options Exchange (“CBOE”) is the exclusive supplier of SPX options. In this aspect, CBOE provides a range of SPX alternatives with varying compensation standards and ranges, such as A.M. and P.M. payoff, weekly alternatives, and end-of-month options. Significantly, because SPX is a technical indicator, an investor who engages in options trading utilizing SPX will necessarily be engaging in uncovered, or naked, options trading.

How Does The UBS “Iron Condors” Program Cause Investment Loss?

The iron condor structure¬†involves writing two close money option contracts that are short, in addition to buying two deeper out-of-the cash option contracts which are long. When implementing this initial part of an iron condor, the investor is essentially betting that between now and expiration, SPX’s trading will stay range-bound within both alternative strike prices — thereby ensuring that the uncovered alternative contracts will expire worthlessly and the investor will gain the option premium earned.

In recognition of the substantial risks associated with short uncovered option contracts, the iron condor strategy entails another element for purposes of risk mitigation. Notably, the next part of an iron condor plan involves purchasing further out-of-the-money put contract, as well as buying an additional out-of-the-money call contract. Thus, while the first two legs of the iron condor include two exceptionally risky short uncovered options, the third and fourth legs of the iron condor want to mitigate that threat with significantly less risky long SPX alternatives. Collectively, these four options transactions, or legs, constitute an iron condor strategy.

Finally, options strategies like the iron condor level bets in favor of period expiration versus volatility. On the one hand, an investor could pocket options premium income in those instances in which the option — which has a finite lifespan and adjusted expiration and, therefore, is properly regarded as an expiring asset — goes to zero and expires worthless. However, on the other hand, periods of pronounced market volatility can quickly result in scenarios where the option premium is dwarfed by losses due to market volatility. A volatility spike in the stock markets, as in early February 2018 or in December 2018, could cause substantial losses for many investors put in so-called “yield augmentation” and other similar investment strategies premised on reduced market volatility.

Without having received full disclosure from their financial adviser concerning these substantial dangers embedded in options hedging or investing strategies, investors that have sustained unexpected or unnecessary losses in connection with these or similar options investing could have the ability, through an attorney, to recoup their losses. Sometimes, the recommendation from a broker or financial adviser may have lacked a reasonable basis in the first place, or the nature of the investment — such as its risk elements — was not adequately disclosed or otherwise identified.

Looking for help to evaluate your losses? Contact the Investment Loss Recovery Group, who are top-rated investment fraud attorneys with extensive experience in tackling complex options trading cases nationwide. If you lost money because your broker or advisor advocated an options trading investment such as an Iron Condor strategy or yield enhancement strategy (“YES”), in Morgan Stanley, Merrill Lynch, Wells Fargo, UBS (or elsewhere) or about some other investment strategy that resulted in unexpected or unnecessary investment losses, enlist the help of an attorney by calling them today at 1 (888) 628-5590.


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  • Article by moneyfiles.org

To recover Yield Enhancement Strategy investment losses, contact the Investment Loss Recovery Group at 1 (888) 628-5590.

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