Morgan Stanley Hit with $11.5M Arbitration Settlement Over Options Strategy Gone Sideways

Investors concerned about option strategies recommended by their broker should seek advice from a securities attorney.

FINRA has ruled that Morgan Stanley must pay $11.5 million in damages to an investor who claimed negligence, breach of fiduciary duty and contract, failure to supervise, fraud, and unauthorized trading.

The investor’s claims relate to Morgan Stanely’s deployment of a ‘covered call strategy‘. This is an options strategy whereby a seller offers buyers a call option at a set price and expiration date on a security that the seller owns. The holder of the covered call option can then sell the stock at the strike price. But the seller of the call option still owns the underlying securities.

In this case, the investor claims he suffered “lost opportunity damages” when stocks, including Nvidia, Tesla Motors, Apple Computers, Salesforce, and Microsoft, were “called away” from his trust account.

“I would not be surprised to see more claims like this filed in the future, because options strategies can be very, very high-risk strategies that are sometimes sold as conservative strategies actively managed by some financial advisors.”

Jeff Sonn, Securities Attorney