(205) 322-1201 info@gathingslaw.com

For those who are not already familiar, UBS Financial Services, Credit Suisse, Merrill Lynch, and Morgan Stanley, have offered investors the opportunity to engage in an investment strategy known as YES. YES stands for “Yield Enhancement Strategy.” These firms have marketed Yield Enhancement Strategies as a safe alternative to traditional investing strategies to enhance investors’ yield, or income, on their investments. However, Yield Enhancement Strategy investors have suffered significant losses, and continue to suffer.

These Yield Enhancement Strategies result in large fees and commissions for firms like UBS and Credit Suisse because each Yield Enhancement Strategy investment involves multiple call and put options that generate fees. Regardless of how an investor’s portfolio performs, these firms stand to make fees, commissions, or both. 

Yield Enhancement Strategies involve purchasing multiple uncovered short options. Investors hold these uncovered short options if the underlying asset drops in value and an uncovered option if the underlying asset increases in value. This essentially means investors purchase when there is an unexpected market swing and because of an unexpected market swing. This is risky and places investors in the position of deciding whether to let these options merely expire and collect nothing, or to buy stock when most would not advise doing so.

Some of these firms also have offered an even more expensive type of Yield Enhancement Strategy: the “Iron Condor.” Instead of purchasing two options, the investor purchases four options, buying options with strike prices at either end of the anticipated fluctuation range of the underlying assets like in normal Yield Enhancement Strategies, but then also buying options even further out and creating an even wider strike range. These secondary options are supposed to help mitigate the risk, but of course, as with all investments, there is always a risk that things will not go according to plan, and investors are at risk of losing all of the money they put into the Iron Condor Yield Enhancement Strategy.

Kim Massey, Associate, Gathings Law