UBS Yield Enhancement Strategy Losses

UBS Yield Enhancement Strategy Exposed Investors to Great Risk

The Yield Enhancement Strategy was supposed to involve a complex options strategy known as an “iron condor” that involved buying and selling both puts and calls on the S&P 500.

An iron condor is supposed to be a non-directional options strategy that entails entering into a series of options transactions. The structure consists of selling a lower strike out-of-the-money put, buying an even lower strike out-of-the-money put, selling a higher strike out-of-the-money call and buying another even higher strike out-of-the-money call.

The iron condor strategy is supposed to function well during periods of low market volatility. But UBS also claimed that its YES strategy “prepare[d] for unexpectedly volatile market conditions.

Notwithstanding UBS’s claims, as a result of significant market volatility in December 2018,, UBS YES investors suffered considerable losses.

We believe that UBS misrepresented the risks of its YES options strategy and also failed to create and implement adequate risk controls that would have provided the promised “downside protection”. And it certainly appears that UBS failed to prepare for volatile markets, as it claimed it would.