On August 23, 2019, an extensive article in The Wall Street Journal (“UBS Faces Client Backlash over Options Strategy”), exposed a complex investment strategy pitched as low-risk by stockbrokers at UBS Group AG (NYSE – UBS) that has triggered a backlash from clients of its securities unit.
The strategy, called Yield Enhancement Strategy, or “YES,” has reportedly already generated at least $60 million in losses for clients and dozens of customer complaints.
The strategy involved the use of several option trades and borrowing, according to marketing materials, and faltered when volatility in the stock and bond markets intensified last year.
Although UBS’ marketing materials were reported to have stated that the “YES” program sought to “limit exposure” to extreme market moves, “in just one month late last year, the strategy had losses exceeding 13%” according to the WSJ – a decline which highlights the risks in highly leveraged financial investments during periods of heightened volatility in the markets.
According to the WSJ, “the YES strategy typically involved putting on four different options trades – relating to an underlying stock index, such as the S&P 500 – at different strike prices but with the same expiration date. The strike price can be the point at which the owner of a “call” option can buy or the owner of a “put” option can sell the underlying security. The sale of short-term, “out-of-the-money” puts and calls on an index – a situation when the underlying price of the index isn’t at or better than the option’s strike price – was coupled with the purchase of short-term below-market puts and above-market calls on the index to mitigate risk, UBS marketing materials show.
When the S&P 500 was relatively stable, for example, the options generated a positive return, but when the index gyrated, losses resulted. Because the strategy made use of borrowed funds – as much as $5 were borrowed and invested for every dollar put in by the client – investors had to either put up additional money or have their positions sold at a loss when the trades went against them.”
If you are an individual or institutional investor who has any concerns about your Yield Enhancement Strategy investments with UBS, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).