At 10 AM on Monday, March 9, safeguards were invoked against an all-out crash, as the markets were forcibly shut down and reopened after early trading sent stock values plummeting.
If, like many investors, you were lured into putting your money into one of the supposedly “low-risk” Yield Enhancement Strategies — such as the UBS YES strategy or the iron condor Harvest CYES strategy — the current stock market volatility could be hitting you hard.
The bad news is that extreme market volatility may be around for a while. The good news is that you might be entitled to relief for your YES investment losses.
YES Spells Loss in Volatile Markets
Marketed as a market-neutral strategy, YES-type investments are big losers in highly volatile markets. In brief, a Yield Enhancement Strategy investment occurs when a broker sells call or put options to enhance returns in relatively stable or flat markets. While the YES strategy is often pitched as a “safe” or “stable” option for investors seeking consistent returns, the reality is that the investment products bought and sold under YES strategies are extremely complex and risky. Unexpected market turbulence can quickly lead to substantial losses.
Last week’s market turbulence resulting from the uncertainty surrounding the economic impact of the 2019 novel coronavirus (COVID-19) is just the kind of event that creates great losses for YES investment customers, and experts worry there is no end in sight.
COVID-19 Market Swings: The New Normal?
On Friday, the VIX Volatility Index — a 30-day measure of market volatility that tends to spike during periods of uncertainty — very nearly reached 55, its highest level since the peak of the 2009 financial crisis.
As we reported last week, market volatility has been high since February 24, but last week, for the first time in its 93-year history, the S&P 500 experienced a week of alternating gains and losses of more than 2 percent. It’s not a stretch to conclude that investor fear over the worldwide impact of the new coronavirus — and its impact on the stock market — is not letting up any time soon.
While the media focuses on the growing number of cases — the World Health Organization announced over the weekend that the number infected with COVID-19 had surpassed 100,000 worldwide — economists are trying to predict to what extent the crisis will disrupt people’s abilities to work, travel, shop and otherwise live normal lives.
Coronavirus Uncertainties Fuel Market Insecurities
The unknowns keep mounting, resulting in the surges in sell offs and buy backs that kept investors’ heads (and pocketbooks) spinning all week.
Contributing to this crisis of uncertainty are:
- Conflicting reports about how fast the virus is spreading and where
- Concerns about the availability of testing
- Whether and to what extent the US government will offer bailouts to the travel and other impacted industries
- Issues surrounding the impact of the virus on global supply chains and merchandise production
- How mounting fears and the possibility of government restrictions on movement could cause a decline in consumer spending
While investors are being advised not to panic, Reuters reports that Bank of America Merrill Lynch compared the coronavirus to a “slow-moving train wreck” where the “market comes slowly and progressively to the realization of the magnitude of the events unfolding.”
What to Do If You Find Yourself Facing Yield Enhancement Strategy Losses
If you are an individual investor who has suffered a loss due to a UBS YES or an iron condor investment, financial compensation may be available through FINRA arbitration. To find out more, contact our law firm today for a free consultation.