Yield enhancement strategies (YES) are high-risk investments that can result in substantial losses. They are also highly-complex; and, as a result, they are only suitable for the most-sophisticated of investors. If you have lost money in a YES investment, here are some of the key terms you need to know:
Yield Enhancement Strategy
A “yield enhancement strategy” is a method of investing which involves buying options with strike prices at the top and bottom of a specified range. If the price of the underlying asset or index (most commonly, the S&P 500 index) remains within this range during the option period, then the options expire and the investor is entitled to an option premium. However, if the price does not remain within this range, an investor can lose his or her entire investment.
An “iron condor” is a specific type of yield enhancement strategy sold by UBS Financial Services and other firms which involves four separate investment transactions. The iron condor is designed to mitigate investors’ risk of loss by widening the range within which investors can collect an option premium. However, if the market fluctuates, investors can face even greater losses than they can investing in a “normal” yield enhancement strategy.
Collateral Yield Enhancement Strategy
A “collateral yield enhancement strategy” is an even more risky form of YES investment. With a collateral yield enhancement strategy (CYES), investors rely on a portfolio of iron condor investments, all of which have the potential to fail and leave the investor with nothing.
An “option” is a type of investment which involves purchasing the right to buy or sell another investment (such as a stock) if the price of the underlying investment reaches a certain price within a specified time. If the underlying asset reaches the “strike price,” then the investor can buy or sell the underlying asset and earn an immediate profit. However, if the underlying asset does not reach the strike price, then the purchased option simply expires.
Uncovered (or “Naked”) Option
An “uncovered option,” also known as a “naked option,” is an investment which involves buying an option without also buying an offsetting position in the underlying asset. It is riskier than buying a “covered option,” which mitigates the investor’s potential loss. Yield enhancement strategies involve the purchase of uncovered options.
“Unsuitability” refers to a level of investment risk that is incompatible with an individual investor’s sophistication and financial status. Yield enhancement strategies are unsuitable for all but the most-experienced high-net-worth investors, and brokerage firms that sell unsuitable investments can (and should) be held accountable for affected investors’ losses.
The method for recovering investment losses sustained due to unsuitable investment advice and other forms of fraud is known as “FINRA arbitration.” The Financial Industry Regulatory Authority (FINRA) requires all registered brokerage firms to arbitrate investor claims, and arbitration provides a streamlined and cost-effective venue for individual investors to recover their fraudulent losses from YES, iron condor and CYES investments.
Speak With an Investment Fraud Attorney for Free
Have you suffered a yield enhancement strategy loss? If so, we encourage you to contact us for a free, no-obligation consultation about your legal rights. To find out if you may be entitled to recover your losses through FINRA arbitration, please call (212) 742-1414 or request an appointment online now.