For investors with a large portion of their wealth tied up in a single stock, the stakes are high. Whether it’s a legacy position in a company you helped build or a significant holding in a high-performing stock, concentrated positions can leave you vulnerable to market volatility. Selling may not always be an option due to tax implications or emotional attachments, but managing the risk is essential. That’s where options come in.
A concentrated stock position – where a significant portion of your portfolio is tied to one company – can create both opportunity and risk. While the potential for growth is exciting, the downside risk is equally significant. Market fluctuations, industry shifts, or company-specific events can drastically affect your financial security.
Common challenges include:
Options provide a toolkit to manage risk, generate income, and maintain flexibility. These are three key strategies.
Think of a protective put as an insurance policy for your stock. By purchasing a put option, you gain the right to sell your shares at a predetermined price, protecting against significant downside risk.
Example: If your stock is trading at $100, you can buy a put with a strike price of $95. If the stock drops to $80, you can still sell at $95, limiting your loss.
Generate income from your position by selling call options on your stock. While this strategy limits your upside if the stock rises above the strike price, it provides immediate income and can be an effective way to monetize a position.
Example: You own 1,000 shares of a stock trading at $100. You sell calls with a strike price of $110, earning premium income while agreeing to sell if the price exceeds $110.
A collar combines a protective put and a covered call to create a price range in which your stock can trade with reduced risk. This strategy balances protection with income generation.
Example: Buy a put at $95 and sell a call at $110. Your risk is limited below $95, and your gains are capped above $110, creating a defined range of outcomes.
At SteelPeak, we understand that managing concentrated positions requires both expertise and customization. Our team works closely with clients to assess the risk associated with their holdings, tailor options strategies to align with financial goals and risk tolerance, and monitor and adjust positions as market conditions change.
We believe in proactive planning that allows you to maintain control over your wealth while minimizing risks. Whether you’re looking to protect your holdings, generate income, or both, our options strategies are designed to meet your unique needs.
Managing a concentrated stock position doesn’t have to mean giving up control or facing excessive risk. With the right options strategy, you can protect your wealth and unlock its full potential.