Recovered for Investors
The Doss Firm is representing clients of UBS who have suffered losses in an option spread strategy named the “Yield Enhancement Strategy” or “YES.” The YES strategy is also known as the “Iron Condor” strategy. It is essentially a leveraged, high-risk options strategy that UBS described as “conservative” and “low risk.” It was sold to investors in need of higher yields than those available from traditional safe investments like certificates of deposit. UBS allegedly told clients that the investments were more reliable because they were not correlated with the stock and bond markets. In executing the strategy, UBS used investors’ assets as collateral in a margin account.
The strategy is said to work well in periods of low volatility, but high volatility led to losses.
UBS allegedly misled Iron Condor investors about the risks and also engaged in excessive trading to try to recover the losses. Losses of more than 20% in December of 2018 alone have been reported, and the total losses maybe $1 billion or more.
An Iron Condor trade is a high-risk, complicated option spread strategies. It involves a series of options trades, and each option trade presents a risk of investment loss. The Iron Condor is essentially a bet for or against market volatility. The inner workings comprise a virtual “black box,” meaning they are not transparent and virtually impossible for an investor to monitor. UBS brokers were paid relatively high commissions for selling these products. They were incentivized to sell them regardless of their unsuitability. These products are leveraged, are held in margin accounts, and are collateralized with investor capital.
UBS’s Yield Enhancement Strategy (“YES”) was sold to clients as a neutral or low-risk way to generate returns through the Iron Condor trading strategy. Investors lost 20% in UBS’s YES product in December 2018 alone.
A “condor” or “condor spread” is a type of trading strategy which seeks to profit from market volatility. Condor spreads contain either all call options or all put options. A call option is a contract that provides the purchaser the right to buy a security at the strike price before the expiration of the option. A put option provides the right to sell the referenced security (or put it to the seller of the put option).
An iron condor consists of both calls and puts. The investor seeks to profit from low market volatility by collecting a premium.
Investors must be able to demonstrate that their losses are the result of broker misconduct to recover their damages through FINRA arbitration. Examples of broker misconduct are:
(i) The broker recommended the investment strategy to earn commissions;
(ii) The broker misrepresented or failed to disclose material facts and risks of the investment strategy;
(iii) The investment strategy resulted in an overconcentration in the investor’s portfolio; and/or
(iv) The recommended investment strategy was unsuitable for the investor. In such cases, investors may be able to recover all of their investment-related losses through the arbitration process.
These cases are resolved in FINRA arbitration. FINRA rules require that claims must be filed within six years from the date of the transaction or occurrence giving rise to the complaint. When does the clock start ticking? This issue is often unclear and is decided by the arbitrators.
To find help recovering losses from an Iron Condor trade, call a stockbroker fraud lawyer at The Doss Firm, LLC today for a free consultation.