Last month, AlphaBetaStock.com reported that UBS Yield Enhancement Strategy, complex options risk investment strategy emerged as the market collapsed at the end of 2018. We are predicting a similar result because of recent market volatility.
UBS financial consultants put their customers on the “Yield Enhancement Strategy,” or YES as a safe and effective mechanism to improve the return from a generally conservative portfolio.
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UBS implemented the YES strategy as a neutral or low-risk strategy that required customers to oppose a customer’s margin or “mandate” to generate returns through the trading strategy of “iron condor” options.
The iron condor is a non-directional trading strategy that is expected to have a high probability of earning a small limited profit when basic security is considered low.
Sounds good enough, right? Not be so fast …
Unfortunately, when market volatility was not evident in thirty-one years in December 2018, the strategy failed.
Locked customers with huge daily losses, since December 2018, have discussed the UBS financial advisers for explanations and advice. Unfortunately, these advisers now give clients the only advice “stay on the course”.
In fact, portfolio managers who run the strategy are probably trying to find a way to recover losses on client portfolios of more than 20% since December.
Many investors did not even know that a strategy involved dangerous options that claimed they would qualify for trading risk options at the firm. Clients of brokerage firms face many barriers before being given the green light for trading options. Many of these clients were not paying for the strategy YES qualified.
Investors are now fighting back in filing cases of investment fraud arbitration cases seeking to recover their LI losses.
We will reiterate it: investors, be careful of dangerous and low-risk trading strategies. If they buy in such strategies, they may wind up looking up in the sky to find out if there are any iron containers falling on their heads.
Turning to Markets…….
The U.S. Treasuries remained divided during Friday’s afternoon session ahead of the country’s employment report for the month of September, scheduled to be released today by 12:30GMT.
In addition, a host of speeches by members of the Federal Open Market Committee (FOMC), namely, Rosengren, Bostic, George, Clarida and Quarles, due to be delivered later through the day shall add further direction to the debt market.
However, of utmost importance, will be the speech from FOMC Chair Jerome Powell, at 18:00GMT, for detailed insight into the debt market.
The yield on the benchmark 10-year Treasury yield slipped 1 basis point to 1.526 percent, the super-long 30-year bond yield lost 1-1/2 basis point to 2.023 percent while the yield on the short-term 2-year edged nearly 1 basis point higher to 1.394 percent by 12:00GMT.
Global markets, especially US equities, have become more sensitive to the economic data this week. The market is becoming more worried that the trade war between the US and China is starting to take far more of a toll on the global economy, Lloyds Bank reported.
While manufacturing PMIs have been under pressure for a while, the services sector is also starting to show erosion in confidence, both US ISMs this week coming in much weaker than expected, seeing US equities and yields fall with US interest rate markets now almost fully discounting another 25bps cut by the Fed at the end of this month, the report added.
Market sentiment on risk assets remains cautious ahead of today’s US employment report while the WTO cut its forecast for global trade growth from 2.6 percent to 1.2 percent in 2019 and from 3.0 percent to 2.7 percent in 2020, Eurobank Economic Analysis & Financial Markets Research reported.
Meanwhile, the S&P 500 Futures remained tad -0.36 percent down at 2,901.38 by 12:05GMT.
Robert Thomas has over 14 years experience in the investments on the institutional side of markets and has an “insider” view on the markets. In addition, he is an futures day trader that focuses on analyzing fundamentals, specifically earnings reports and technical levels. He has a Masters Degree in Business and Economics.