Our Investment Fraud Attorneys are Actively Representing Clients Who Have Lost Money in “Iron Condors” and Other Yield Enhancement Strategy (YES) Investments
Iron condor investments present significant risks for individual investors. Not only do these investments involve purchasing uncovered (or “naked”) options that have the potential to expire and leave investors with nothing, but they are also involve pledging other investments as collateral, and they are actively managed by brokers who earn fees regardless of the outcomes of these investments for their clients.
Yet, brokerage firms like UBS Financial Services are pitching iron condors as relatively-safe investments that will modestly improve investors’ portfolio returns over time. Instead of emphasizing the risks associated with purchasing uncovered options (and iron condors actually involve the purchase of four uncovered options), brokers are telling investors that they need not worry because their portfolios are being actively managed for stable long-term growth. However, many investors who have been convinced to invest in iron condors are suffering substantial losses; and, when they turn to their brokers for help, they are being told that they should have read the fine print.
Iron condor investments are risky, and UBS Financial Services and other brokerage firms know it. Their sales presentations warn of these risks, but only in very general terms, and only after touting the supposed “benefits” of yield enhancement strategies (YES) like the iron condor. Investors who are not adequately informed of the risks stand to incur significant and unexpected losses; and, when they do, they can seek to recover these losses through arbitration with the Financial Industry Regulatory Authority (FINRA).
Investment Fraud Lawyers for Individual Investors with Iron Condor Losses
Zamansky, LLC is a leading securities fraud law firm located in the heart of Wall Street. Our lawyers represent individual investors in claims against their brokerage firms and investment advisors, and we routinely take on the big brokerage firms like UBS Financial Services, Credit Suisse, Merrill Lynch and Morgan Stanley. We have helped countless clients recover fraudulent investment through FINRA arbitration; and, if you have lost money in an iron condor investment, we may be able to use our experience to help restore your investment portfolio.
FAQs: Iron Condor Investment Losses
Q: What is an iron condor option trade?
An iron condor investment actually involves a series of option trades, each of which carries the potential for investment losses. When a brokerage firm like UBS Financial Services or Credit Suisse invests in an iron condor on your behalf the firm buys four uncovered options, two at the high and low end of a range of expected market volatility, and then two more past the ends of this range. However, while most option purchases are made with the goal of exercising the option and earning a profit, with an iron condor, the goal is for all four options to go unexercised. If this happens, then the investor earns a modest “option premium,” and the whole structure can be purchased again.
Q: What is the difference between a condor and an iron condor?
A “condor” or “condor spread” is a type of investment strategy which involves seeking to profit from either low volatility or high volatility, depending on whether the investor purchases a “long condor” or a “short condor.” With an “iron condor,” the goal is always to profit from low volatility by collecting an option premium when the options expire unexercised.
Q: Should you let an iron condor expire?
All options expire, and the goal of iron condor investing is to let each of the options expire before their “strike prices” are realized. This results in payment of the option premium referenced above. However, if one more of the options reach their strike price, then the investor stands to lose the entire value of the investment.
In practical terms, since iron condors are managed investments, individual investors do not make the decision whether to let individual options (or the entire iron condor structure) expire. This decision is left to the brokers who stand to profit regardless of the outcome for their investor clients, and who also reserve the discretion to make additional trades on their clients’ accounts.
Q: How do you calculate max loss on an iron condor?
In the simplest terms, the maximum losses sustainable from an iron condor investment are limited to the price of the four options purchased. However, investors who lose money in iron condor investments also face opportunity costs; and, if they buy on margin while pledging their other investment assets as collateral, they can face additional losses as well. Furthermore, since UBS Financial Services, Credit Suisse and other brokerage firms engage in iron condor transactions on an ongoing basis as part of their portfolio management programs, investors can face substantial losses as a result of repeated iron condor failures.
Q: What compensation is available for iron condor losses through FINRA arbitration?
In order to recover their losses through FINRA arbitration, investors must be able to demonstrate that their losses are the result of investment fraud. In most cases, this involves showing that their brokers gave them self-interested investment advice (i.e. they recommended iron condors in order to generate fees), that their brokers failed to provide them with material information, or that their brokers overconcentrated their portfolios or otherwise gave them unsuitable investment recommendations. In cases of investment fraud involving iron condors, investors can seek to recover all of their investment-related losses through the arbitration process. This includes the losses related to the purchase of uncovered options as well as portfolio management losses.
Q: How long do investors have to file FINRA arbitration claims for iron condor losses?
For all claims, the statute of limitations for filing an arbitration claim with FINRA is six years from the date of loss.
Speak With an Investment Fraud Lawyer about Your Iron Condor Losses
If you would like more information about recovering your losses from iron condor investments, please contact us to request a free initial consultation with one of our investment fraud attorneys. To schedule an appointment as soon as possible, call 212-742-1414 or tell us how to reach you online now.