Tag Archives: LJMCX

Losses On LJM Preservation and Growth Fund May Be Recoverable

February 2018

We are currently reviewing potential claims for investors who suffered losses in  LJM Preservation and Growth Fund (LJMIX & LJMCX) securities.

Once close to a billion dollars, the LJM Preservation and Growth Fund lost over 80% of its value in the first week of February 2018 and is closed to further investment, according to filings with the US Securities and Exchange Commission.

According to analysts following the fund, the strategy  of the LJM Preservation and Growth Fund was to sell naked put options on S&P futures.

Put Option

A “put” option is a contract granting the right to the buyer to sell a security at a specified price (strike price) , allowing the buyer to hedge a position. The seller of a put option, in this case LJM,  is betting the price of the security will remain higher than the strike price of the option. If the seller doesn’t own the security on which the option is written, that is called naked option writing and the downside risk is magnified greatly.

If a downward market adjustment occurs, as it did in the first week of February 2018, losses can be catastrophic. These charts show the dramatic drop in value on two of the LJM funds:

Brokers Have Duty to Make Suitable Recommendations

Brokers have a duty to make suitable recommendations taking into account an investor’s health, age, level of financial sophistication , tolerance for risk and investment objectives. For most retirees, a recommendation to invest in an investment that could experience such a dramatic drop in value would not be suitable. Investors may have been unaware of the risks associated with an investment in the LJM Preservation and Growth Fund, given the apparent misuse of the word “Preservation” .

Losses May be Recoverable

If you have losses in the LJM Preservation and Growth Fund and believe you were misled as to the risks, contact us to learn how damages may be recoverable through FINRA arbitration.

Rex Securities Law , with offices in Boca Raton, FL,  and  Austin, TX,   provides representation to  investors  nationwide who are seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney.

Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.

Nationwide Representation

Rex Securities Law

TollFree: 877-224-3199

Florida-561 391 1900 

Texas-512-329-2870

Did Your Broker Suggest Naked Puts? Uncovered Puts?

February 2018 Update: Losses on LJM Preservation and Growth Fund? See this for details on how you may be able to recover damages from the firm that recommended this investment. 

If your broker suggested that you sell put options (also called an ‘uncovered put’) and you lost money, you may have a claim that the strategy was not suitable for you, depending upon your level of financial sophistication.

The seller of an uncovered put (you for example) collects a premium from the buyer and is contractually bound to purchase the underlying stock at a specified price for a given period of time, generally 90 days or so. If the price of the stock goes up or remains unchanged, then the option will not  be exercised (ie: the person who paid you the premium will not force you to buy the stock) and you will have benefited to the extent of the premium you collected.

This all works very well in a bull market, but what about a bear market, or if the particular stock on which you sold the put option falls dramatically? Your losses can be enormous, a fact often misunderstood by unsophisticated investors or overlooked in the explanation from broker.

Here is an example from a recent case involving the sale of put options on S&P 500 Index.

In early August of 2008, at a time when the financial markets did not look particularly stable, Mr. Smith (name used for this example) sold 10 put options on the  Nov 1075 S&P index. On the day of the sale the S&P 500 index was about 1300. Mr. Smith collected $7 per share for a total of $7,000 (each option is for 10 shares). For the $7,000 paid by the buyer, Mr. Smith was obligated to buy 1,000 shares at a price of $1075 at any time up to the expiration date of the options (third friday in November 2008).

Since, at the time of the sale, the index was 125 points above the exercise price of 1075, one might think this was a nice way to make an easy profit. That is not the case. The index dropped and rebounded over the rest of August and early September and in late September fell below 1075. Ultimately the position was closed out when the index was 899, at a price of $166 per share.

Net result was a loss of $159,000 on this transaction that lasted just 60 days. The total upside of this transaction was the $7,000 premium collected on the sale of the option.

We have consulted with a number of clients who were encouraged by their brokers to write uncovered puts who were never made aware of the huge potential downside risk associated with such a strategy. If you experienced losses on an option strategy suggested by your broker that you did not fully understand, you may have legal rights that could result in the recovery of losses.

Rex Securities Law , with offices in Boca Raton, FL,  and  Austin, TX,   provides representation to  investors  nationwide who are seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney.

Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.

Nationwide Representation

Rex Securities Law

TollFree: 877-224-3199

Florida-561 391 1900 

Texas-512-329-2870