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INVESTOR UPDATE—Recovery Options For Investors Who Lost Money In The UBS Yield Enhancement Strategy (“YES”)

As previously reported, The Wolper Law Firm is currently investigating potential claims against UBS Financial Services, Inc. in relation to its marketing and implementation of an options based “Yield Enhancement Strategy”, or “YES,” in customer accounts.

What is the UBS Yield Enhancement Strategy?

The UBS Yield Enhancement Strategy is an options strategy that was marketed by UBS as a safe method to generate supplemental portfolio income.  The UBS Yield Enhancement Strategy involves the use of an “Iron Condor” options strategy, which entails selling both near-the money and out-of-the money put and call options against the S&P 500 index, NASDAQ and other primary indices.  In a stabilized market environment, some or all of the options will expire and the investor collects the premiums.  Conversely, in a volatile market, the premiums associated with the options positions will spike, creating margin calls, closure of options positions at a loss and/or the exercise of the underlying options. 

How did the UBS Yield Enhancement Strategy Cause Investor Losses?

The premium value of an option is determined by (1) time (i.e., maturity) and the (2) strike price.  If the option has a shorter maturity, there is theoretically less time for an investor to navigate short-term volatility, leading to more pronounced swings in the market value of the option.  Conversely, if the option has a longer maturity and the options are further out-of-the-money, short-term volatility may not cause significant changes in the market value of the option. 

In 2018, the financial markets experienced extreme volatility.  In January 2018, the S&P 500 was at 2,800.  Throughout 2018, there were violent fluctuations in the S&P 500, which reached highs of 2,929 and a low of 2,350.  The most volatile period was between October and December 2018 during which the market declined 20% followed by a rebound of 12% through January 2019.  These violent swings caused the premiums of both the put and call side of the iron condor strategy to spike, leading to losses on both sides of the trade. 

How did UBS market the UBS Yield Enhancement Strategy?

In today’s current interest rate environment, it has been difficult for investors to identify short-term, fixed income investments that generate a stable, predictable income stream.  In the absence of such opportunities, many UBS Financial Advisors pitched the UBS Yield Enhancement Strategy as a safe method to generate portfolio income.  UBS Financial Advisors represented to customers that the strategy was properly hedged such that even if there were market movements, the investor’s principal was protected.  In other words, the UBS Yield Enhancement Strategy was represented to be a relatively conservative investment strategy.

How do I know if I have a claim to recover my investment losses in the UBS Yield Enhancement Strategy?

Financial advisors have a legal and regulatory obligation to recommend only suitable investments and investment strategies that are appropriate for their clients’ needs and objectives. Their employing brokerage firm has a legal and regulatory obligation to supervise the Financial Advisors’ sales practices and dealings with clients.  To the extent any of these duties are breached, the customer may be entitled to a recovery of his or her investment losses.  

If your Financial Advisor failed to disclose the risks associated with the UBS Yield Enhancement Strategy, or otherwise “soft-peddled” the risks, this may provide the factual basis for a claim of misrepresentation, omission or breach of fiduciary duty. 

If you are an investor in the UBS Yield Enhancement Strategy, and are looking for an attorney to evaluate your legal options, contact the securities litigation and arbitration attorneys at the Wolper Law Firm, P.A.  The Wolper Law Firm represents investors nationwide in securities litigation and arbitration on a contingency fee basis.  Matt Wolper, the Managing Principal of the Wolper Law Firm, is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities.  Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters.  We can be reached at 800.931.8452 or by email at mwolper@wolperlawfirm.com.

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