UBS has started a YES or Yield Enhancement Strategy to certain clients in a safe way to enhance the return on money. This was marketed as low-risk and this strategy was very risky which ended up investors to lose money. What was considered to enhance wealth began destroying it. Investors got involved in this strategy minus understanding the risks that are involved in it. The YES strategy was a complicated scheme that was designed to give more yields to the clients when the market was flat and the interest rates were very low.
Options are contracts between sellers and buyers. The basic components are puts and calls. YES was based on iron condor that was a complicated one and it involves investing in many calls and put spreads having different strike prices. This strategy was not going to give any person a massive yield. It was intended to earn a very small return and to hedge risk. However, as the market volatility was massive, investors suffered UBS Yield Enhancement strategy losses and they lost almost 20 percent. The brokers who recommended the strategy did not disclose the risk that was involved in it. According to many, the strategy was not implemented properly.
YES made huge losses
UBS Financial Trading program that was marketed as YES to the USB brokerage firms suffered huge losses amounting to 20 percent of the capital committed by it. Though the customers to whom this strategy was sold were given the impression that the maximum loss suffered by them was 1-2%. There was an impression of minimal risk and accordingly customers were suggested that the YES strategy has limited or finite risk. During the high volatility periods, positions may be adjusted that can enhance returns and provide additional protection to its investors.
Risky investment
The YES strategy was high risk and a hugely complicated investment strategy, which was unsuitable for several investors. This strategy may provide solid returns if a market neither falls nor rises over a short period of time, but at times when a market is highly volatile, its risks become apparent. It was in February 2018 when the market turned volatile and caused substantial losses. YES investors suffered UBS Yield Enhancement Strategy losses during November as well as December 2018 when the market turned highly volatile. Many investors suffered huge losses beyond what they had thought within a very short time period.