The Securities Arbitration Law Firm of Klayman & Toskes announced today that it is investigating the damages sustained by investors who held large, unhedged concentrated positions in JC Penney Company, Inc. stock.
Since trading at $43.18 per share in February 2012, the price of JC Penney stock has dropped about 82% and is currently trading around $7.90 per share. As a result of this decline, J.C. Penney shareholders who held large concentrated stock positions in the company have sustained substantial losses, according to the law firm.
Investment portfolios holding large concentrated stock positions carry significant downside risks. In some cases, investors holding these positions are unable or unwilling to sell due to adverse tax consequences, company or regulatory restrictions or corporate culture, according to the law firm.
Full service brokerage firms whose customers hold large concentrated stock positions have a duty to ensure that their customers understand the risks associated with concentration, and to disclose and recommend the availability of risk management strategies which can be used to protect the value of the concentrated portfolio. Such risk management strategies include stop loss and limit orders, protective puts and collars. Stop loss orders, limit orders and protective puts provide an account with downside protection and an exit strategy should the stock decline in value, according to Klayman & Toskes.
A hedge strategy, known as a “zero cost” collar, creates a range of value that the portfolio maintains irrespective of the fluctuation and direction of the underlying stock price. The failure to use risk management strategies as well as the failure to “hedge” the value of a concentrated portfolio directly exposes an investor’s concentrated position to the fluctuations in the volatile securities markets, the law firm stated.