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Collateral Yield Enhancement Strategy Investment Losses

Posted on Thursday, May 23rd, 2019 at 12:19 pm    

Yield Enhancement Strategy

Did your broker recommend you invest in Harvest Volatility Management’s Collateral Yield Enhancement Strategy (CYES) investments and not adequately disclose the risk associated with this investment?

Brokers across the country who work at large brokerage firms including JP Morgan, Fidelity, Charles Schwab, and Morgan Stanley, Merrill Lynch, Credit Suisse, and UBS among others, are alleged to recommended unsuitable CYES strategy investments issued by Harvest Volatility Management that resulted in devastating losses for their clients. 

Harvest Volatility Management’s CYES investments have suffered significant declines when the market crashed due to the COVID-19 pandemic (the coronavirus of the winter and spring of 2020). 

The YES strategy was marketed as an options strategy that was promoted as a safe way to provide investors with additional income. The YES strategy required investors to commit to a certain minimum amount of investment in their portfolio, which typically was in excess of $1 million. 

The CYES strategy, a type of YES investment, is an even more risky and complicated strategy. Investors who utilize a CYES strategy have investment portfolios that rely on iron condor investments to enhance yield. The CYES is managed by Harvest Volatility Management, LLC. 

An iron condor spread is constructed by selling one call spread and one put spread (same expiration day) on the same underlying instrument. The call spread and put spread are of equal width. When an investor sells the call and put spreads, they are buying the iron condor. The cash collected represents the maximum profit for the position. All of these investments have the potential to fail and lose the investor all of their capital.

The YES strategy offered should only be purchased by investors with an aggressive risk tolerance due to the high-risk nature if the market moves against the position. Some financial advisors misrepresented and recommended the YES strategy to their highest net worth customers, and described it as a safe and efficient way to enhance yield from conservative portfolios. It is alleged that some financial advisors told their wealthy clients that the YES strategy was a low-risk “Iron Condor” options trading strategy. In reality, the YES strategy was unsuitable for many investors and posed a high risk, especially when portfolios were over-concentrated with these securities.  

It is alleged that financial advisors used an iron condor options strategy that involved writing a series of options all at once or around the same time through S&P 500 derived options. The S&P 500 is a stock index based on the 500 largest companies whose stock is listed for trading on the NYSE or NASDAQ. This strategy involves writing short put options followed by two long, deeper options, a strategy that should be for sophisticated investors that seek a highly complex options strategy.

An example of a recent spike in the stock market was on February 5, 2018, which may have caused investment losses to retail investors. On this day, the dow plunged 1,1175 points, making this the worst point decline in history according to CNN. To make matters worse, some investors were asked to put up additional collateral or face margin deficits.

The Yield Enhancement Strategy options strategy involves buying and selling both puts and calls on the S&P 500. The YES would function when there was little market volatility. However, when the stock market faced times of volatility, the strategy would cause investment losses.

Merrill Lynch, Credit Suisse, Morgan Stanley, and UBS and other brokerage firms across the country are alleged to have offered YES strategies in various forms or products, including through managed accounts, structured notes or funds.

Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, JP Morgan, Fidelity, Charles Schwab, and Morgan Stanley, Merrill Lynch, Credit Suisse, and UBS and other brokerage firms may be liable for investment or other losses suffered by its customers.

Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.