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Yield Enhancement Strategy Turns Into Wealth Destruction Strategy

February 26, 2019 Blog

Last month, this blog reported that a complex, risky investment strategy had blown up as the market plunged at the end of 2018.

The so called “Yield Enhancement Strategy,” or YES was pitched by UBS financial advisors to their customers as a supposedly safe and efficient mechanism to enhance yield from a generally conservative portfolio.

UBS pitched the YES strategy as a neutral or low risk strategy that simply required customers to allow margin or a “mandate” to be placed against the customer’s portfolio which would be used to generate returns through the “UBS iron condor” options trading strategy.

The UBS iron condor is a purportedly limited risk, non-directional option trading strategy that is designed to have a large probability of earning a small limited profit when the underlying security is perceived to have low volatility.

Sounds pretty good, right? Not so fast…..

Unfortunately, when the market experienced volatility not seen in three decades in December 2018, the strategy failed.

Panicked customers who, almost daily, are experiencing massive losses since December 2018 have been besieging their UBS financial advisors for explanations and advice.  Unfortunately, the only advice those advisers are giving to clients right now is to “stay the course”.

Indeed, it is likely that portfolio managers who run the YES strategy are scrambling to find a way to recover losses to client portfolios of more than 20% from December.

Many yield enhancement strategy investors did not even know that they were engaged in a risky options strategy which required that they be qualified for risky options trading by the firm.  Clients of brokerage firms face numerous hurdles before they are given the greenlight to trade options. Many of these clients paying for the YES strategy were simply not qualified.

Taking a Stand Against Yield Enhancement Strategy Losses

Investors are now fighting back as they are filing a slew of investment fraud arbitration cases seeking to recover their YES losses.

We will say it again: investors, beware of risky trading strategies pitched as low-risk and yield-enhancing. If they buy into such strategies, they may wind up looking up in the sky to see if any iron condors are falling on their heads.

Zamansky LLC is a New York law firm which represents investors in court and arbitration cases against securities brokerage firms and issuers.  The firm may represent investors in cases against companies mentioned in this blog.  Zamansky LLC also represents investors in arbitration cases against UBS and other brokerage firms regarding Puerto Rico bonds and UBS closed end bond funds and other investments.

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