Has the Harvest Volatility Management Collateral Yield Enhancement Strategy (“Harvest CYES”) been a deceptively bitter harvest for you? You are not alone in your complaint. Well known brokerage firms like Merrill Lynch, Morgan Stanley, J.P. Morgan, Schwab and Fidelity have sold the product from the 11-year-old little known vendor of options-focused portfolios. But as time goes by dozens of investors have complained they weren’t told by their brokers that the product is excessively risky. Many of these investors were seeking low-risk places to put their money.
Harvest CYES is an complex “Iron Condor” investment structure that was peddled by multiple asset management firms in recent years. Investopedia describes iron condor as a strategy “constructed by selling one call spread and one put spread (same expiration day) on the same underlying instrument.” Most often, the underlying asset is one of the broad-based market indexes, such as the S & P 500 Index (SPX); the NASDAQ-100 Index (NDX); or the Russell 2000 Index (RUT), the financial dictionary adds.
Investopedia goes on to show the head-scratching complexity of the Harvest Volatility Management and Collateral Yield Enhancement Strategy and its ilk by saying it involves selling an at-the-money put with a strike price closer to the current cost of the underlying asset. “Sell one at-the-money call having a strike price just above the current price of the underlying asset. Buy one out-of-the-money call with a strike price further above the current price of the underlying asset. The out-of-the-money call option will protect against a substantial upside move,” Investopedia explains.