Securities Arbitration Awards Highlight Issues Surrounding Hedging Concentrated Stock Positions Resulting From the Exercise of Employee Stock Options

Arbitrators recently awarded an investor compensatory damages, interest and punitive damages when Salomon Smith Barney failed to implement a hedging strategy to protect a concentrated stock position.

The broker had advised a "collar strategy" but, instead, simply sold puts (and pursued other options activity) merely to raise income. The panel found the use of margin especially inappropriate in view of the necessity to meet margin calls by transferring funds out of an IRA.

For a summary of arbitration awards in this area, see, "Securities Arbitration Awards Highlight Issues Surrounding Hedging Concentrated Stock Positions Resulting From the Exercise of Employee Stock Options", published on this website.