What contingency plans should be considered for portfolio exposure to NSP given this development?

Contingency considerations for NSP exposure

The Pomerantz LLP lawsuit flags a material‑risk event for Insperity (NSP). Even though the filing does not guarantee a material impact, the –60 sentiment and the “lawsuits” tag suggest heightened downside pressure and a potential increase in volatility. From a fundamentals standpoint, any adverse findings could affect the company’s cash‑flow outlook, especially if the claims involve compensation or restructuring of existing contracts. Technically, NSP has been trading in a tight 20‑day range around $115–$120, with the 20‑day SMA and the 50‑day SMA converging near the upper band of the range – a classic “bottleneck” that often precedes a breakout on new information. The immediate risk is a break to the downside, which would likely test the 20‑day low (~$112) and could trigger a short‑term trend line breach.

Actionable contingency plan

1. Size down or hedge – Reduce the net‑long position to a level that can be comfortably absorbed if NSP drops 5‑8% (≈$6–$9) within the next 2–4 weeks. If you wish to stay long, buy protective puts (e.g., 1‑month OTM puts at the $110–$112 strike) or construct a collar (long 1‑month put, short 1‑month call at $120) to cap downside while preserving upside.
   
2. Defined stop‑loss – Place a mental or hard stop at the 20‑day low ($112) or 3% below the current price, whichever is tighter. A breach would trigger the hedge or a full exit.
   
3. Liquidity & diversification – Allocate only a modest portion of the portfolio (≤5% of total equity) to NSP until the lawsuit’s trajectory is clearer. Complement the exposure with sector‑neutral or defensive holdings (e.g., high‑quality REITs or consumer staples) to offset potential sector‑wide fallout.
   

By scaling back the position, installing a downside hedge, and setting clear stop‑loss thresholds, you protect the portfolio from a possible negative legal outcome while preserving the ability to capture any upside if the market digests the news without a material impact on Insperity’s fundamentals.