Collateral Yield Enhancement Strategy (CYES) Leads to Significant Losses for Investors
The collateral yield enhancement strategy (CYES) is an even more complicated and risky form of YES investment. Using this options-based strategy, investors rely on a portfolio of iron condor investments, which carry the potential to fail in volatile markets and cause steep losses. Private wealth managers and financial advisors promoted the CYES strategy to high net worth and ultra-high net worth clients as a safe account “overlay” which would enhance yield from conservative portfolios with minimal risk.
CYES is managed by a third-party investment advisory firm called Harvest Volatility Management, LLC, which was co-founded by Rick Selvala. The CEO claimed in an interview with FINalternatives that the strategy “works particularly well for clients who are running more conservative asset allocations or portfolios.” The interview goes on to state that CYES has over 800 separately managed accounts across varying platforms, including UBS Schwab, Fidelity, Morgan Stanley, Merrill Lynch, and Pershing via independent registered investment advisors (RIAs). It is believed that the investors that suffered losses include clients of these companies that partnered with Harvest to offer the CYES account “overlay.”
If you are an investor that suffered financial losses because you were counseled to take part in the collateral yield enhancement strategy, contact us now.
Yield Enhancement Strategy
Alexander Oakes, an associate of Oakes & Fosher, explains what UBS yield enhancement strategy is and how it was used to take advantage of investors.
Iron Condor Options Trading Strategy Misrepresented to Investors
The CYES involved borrowing against investors’ conservative bond or stock portfolios to invest in “iron condor” options trading managed by Harvest Volatility Management.
An iron condor is a trading strategy that includes a pair of options “spreads” constructed by selling one put spread and one call spread on the same underlying instrument. All of these investments have the potential to fail and result in the loss of some or all of an investor’s capital.
Harvest’s iron condors involved selling or writing a series of options all at once or around the same time through S&P 500 derived options. The objective was to produce income through the premiums received on the options that were sold, all while restricting risk and minimizing losses through the options that were purchased.
However, iron condor options trading is not what it appears to be. Not only do these investments involve purchasing uncovered options that may expire and leave investors with nothing, but they may also involve pledging other investments as collateral. Additionally, they’re managed by brokers that earn fees regardless of the outcome for their clients.
Options are very hard to understand for all but only the most sophisticated investors. Many brokers used the complex nature of options trading to their advantage. A number of investors have been misled about the strategy’s risks – before investing and even after the market volatility showed signs of increasing.
If You Suffered Losses Due to the Use of the Collateral Yield Enhancement Strategy – Contact Us
When a broker or financial advisor misrepresents the collateral yield enhancement strategy as safe and low risk, it is a breach of the duty on their part. Oakes & Fosher represents investors across the nation for claims against brokerage firms, financial advisors, and private wealth managers for wrongdoing. If you or someone you know has lost money from investing in the CYES, please contact Oakes & Fosher for a free and private consultation.