Should we adjust our position sizing or consider hedging strategies (e.g., options, shorts) to mitigate the risk from this litigation?

Risk Assessment & Market Outlook

The filing of a class‑action securities lawsuit against Biohaven (BH V N) introduces a material downside catalyst. Legal risk alone can depress sentiment and trigger short‑selling pressure, especially when the lawsuit’s class definition targets investors who purchased the stock during the alleged misstatements period. The market has already priced in some of this risk—BH V N is trading near its 52‑week low, the daily volume is elevated, and the stock has broken below its 20‑day EMA and the $15‑$16 support zone, with the RSI hovering around 35. If the case proceeds to discovery or settlement talks, we could see a further 8‑12% pull‑back on news‑driven volatility spikes. On the fundamentals side, Biohaven’s pipeline remains intact, but the litigation adds uncertainty to near‑term cash flow projections and may delay upcoming financing rounds or partnership deals.

Position‑Sizing & Hedging Recommendations

Given the heightened event risk, a prudent approach is to reduce exposure on any long‑bias position. For existing holdings, consider scaling back to 30‑50% of the original size, especially if your portfolio’s risk budget allows a 2‑3% max drawdown per position. To hedge the residual exposure, a protective put 30‑45 days out (e.g., $14 or $13 strike) provides a defined floor while preserving upside if the lawsuit is dismissed or settled favorably. If options liquidity is thin, a collar—selling a near‑ATM call (e.g., $17 strike) to fund the put—can reduce cost but caps upside. For traders comfortable with short‑bias, a modest covered‑call or a synthetic short (long put + short call) can capture any downside while limiting margin exposure. Monitor the case docket for filing deadlines (typically within 30‑45 days) and be ready to adjust the hedge as the volatility index (VIX) and BH V N’s implied volatility spike.

Actionable Take‑aways

1. Trim long exposure to 30‑50% of current holdings.

2. Buy protective puts (30‑45 day expiry, $14/$13 strike) or set up a collar to lock in a floor.

3. Stay alert for any court filings or settlement updates; a sudden adverse ruling could trigger a rapid 10%+ move, at which point a stop‑loss at $13‑$12 may be warranted.

By aligning position size with the elevated legal risk and employing low‑cost option hedges, you can preserve capital while remaining positioned for any upside catalyst that may arise from a favorable resolution.