A UBS Financial Services options trading program marketed as a “Yield Enhancement” strategy to brokerage customers of UBS, reportedly including risk averse investors with substantial bond portfolios, suffered substantial losses approaching 20% of the capital committed in late 2018 and early 2019, although customers to whom the strategy was sold had reportedly been under the impression that the maximum loss they faced in a given month was 1-2%.
This impression of minimal risk was borne out by UBS’s marketing materials for YES, which at least strongly suggested that the central trading strategy of YES- the Iron Condor– exposed the client to finite or limited risk. For example, one UBS marketing presentation touted historic returns that featured very few months with losses, and many months with gains. UBS marketing materials also characterized YES’s central strategy as follows: “selling short term out-of-the-money European style puts and calls on the S&P 500 Index. To help mitigate downside and upside market exposure, short term below-market and above-market call options are purchased with the same duration as the puts and calls sold.”
Other UBS marketing materials summarize the strategy as follows: