In the wake of severe industry losses at the hands of volatility virus XIV, Credit Suisse's VelocityShares Daily Inverse VIX Short-Term Exchange-Traded Note, UBS' Yield Enhancement Strategy (YES) appears as the newest risky offering to have harmed investors, many of whom are now looking for a lawyer to recoup losses in YES.
A 2017 Bloomberg article introduced the "iron condor" to investors following Harvest Volatility Management's own Collateral Yield Enhancement Strategy (CYES), an entity built to create iron condors, so named because of the shape produced by graphing the strategy's profits and losses.
Rick Selvala, who incidentally came from Volaris, a volitility management unit of Credit Suisse Group, which was involved with the aforementioned XIV note benchmarked to the short-term VIX ETN, explained CYES thusly: The idea is to set an index price between a put contract sale below the linked market's price (for CYES, it's the S&P 500; CYES manages a portfolio of iron condors using listed S&P index options) and a sale above the price. These sales create a net credit in the investor's account, ideally generating cash flow.
Some funds, for instance, employ leverage or other complex tools as part of a yield-enhancement strategy. Leverage, naturally, can multiply losses while an inverse feature can cause profits to turn into losses. Either way, introducing complexity on top of an already-complex product makes it more difficult to understand and more succeptable to both misrepresentation and financial ruin.
According to Selvala, his firm's relationship with advisers including Merrill Lynch, Morgan Stanley, and UBS meant that the high-risk speculative YES family of products reached a healthy dose of investors with existing portfolios. A separate article mentioned CYES's reach extending to Charles Schwab, Fidelity, and Pershing via indendent registered investment advisors.
The article also describes the iron condor's elevator pitch, promising fixed income and high net-worth investors alike an ability to add incremental yield without taking on more risk. But exactly how risky was YES?
The problem with iron condors, then, is an unpredictable market that creates a roller coaster-shape graph that makes it difficult to set an index price. Selvala described most iron condor traders as experienced, which makes UBS brokers and advisors' alleged recommendations of YES to retired clients with low risk tolerance preferences all the more perplexing. Many of these high net worth customers were unsophisticated investors and a cursory overview of their investment objectives would quickly suggest that a complex product, such as YES, was an unsuitable option.
YES, for instance, deals with options, which are generally riskier and more complex securities.
In late 2018, when such a roller coaster of volatility befell the market and the YES strategy turned to NO for many conservative clients who had invested under the representation that YES was safe and secure, and not, as investors discovered was actually the case, complex and risky.
If you have invested with the UBS Yield Enhancement Strategy (YES) product, CYES, or with any firm, broker, or financial adviser who has recommended a similar yield enhancement strategy and represented this risky and complex options product as a safe and secure investment, resulting in losses or harm to your fiscal interests, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.