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Managing Concentrated Stock Positions: An Educational Overview

  • Parkview Partners Capital Management
  • 13 minutes ago
  • 3 min read

Understanding Concentrated Stock Exposure


A concentrated stock position occurs when a significant portion of an individual's net worth is held in a single company’s shares. This can result from equity compensation, long-term investing, inheritance, or business ownership. While concentrated positions may offer meaningful growth potential, they also introduce risk because the financial outcome is tied to the performance of a single security.


A thoughtful approach can help align the management of a concentrated position with long-term financial goals. This guide provides an educational overview of techniques commonly used to address concentration-related considerations.


1. Systematic Selling


Systematic selling involves gradually reducing a concentrated holding over time according to predetermined rules. This approach may help manage market timing concerns and support diversification.


Key considerations:


  • Establishing a consistent schedule for sales

  • Evaluating tax implications before each transaction

  • Coordinating sales with broader planning objectives


2. Options Collars


An options collar pairs the purchase of a protective put option with the sale of a covered call option. This creates a defined price range for the stock, helping to manage downside risk while limiting upside potential.


Important factors include:


  • Selecting appropriate strike prices and time frames

  • Understanding cost and liquidity considerations

  • Reviewing the structure as market conditions evolve


Options Collars (Zero-Cost or Funded)


3. Exchange Funds


Exchange funds allow investors to contribute appreciated stock in exchange for an interest in a diversified fund. This may help reduce single-stock exposure while deferring capital gains tax.


Common considerations:


  • Evaluating the fund’s diversification and structure

  • Understanding liquidity constraints and holding periods

  • Reviewing fees and operational requirements


Exchange Funds (Fund Swap Strategy)


4. Charitable Remainder Trusts (CRTs)


A Charitable Remainder Trust can provide income to designated beneficiaries and support charitable organizations at the end of the trust term. Appreciated stock contributed to a CRT can be diversified within the trust.


Considerations include:


  • Choosing between CRAT and CRUT formats

  • Reviewing administrative responsibilities

  • Aligning philanthropic and financial goals


5. Securities-Backed Lending


Loans secured by investment assets may provide liquidity without immediately selling the concentrated position. The proceeds can be used for various purposes, including diversification.


Key items to consider:


  • Loan-to-value ratios

  • Terms, interest rates, and collateral requirements

  • Potential risks such as margin calls


6. Variable Prepaid Forward Contracts


A variable prepaid forward contract is an agreement in which an investor receives cash upfront in exchange for delivering shares at a future date based on a defined price formula.


Important considerations:


  • Understanding the range of outcomes at settlement

  • Reviewing the contract structure with qualified professionals

  • Monitoring regulatory and tax developments


7. Parallel Hedging


Parallel hedging involves purchasing securities (such as sector ETFs) designed to offset the risk of the concentrated stock. This may help reduce exposure without triggering immediate tax consequences.


Considerations include:


  • Evaluating correlation between securities

  • Reviewing hedge effectiveness periodically

  • Maintaining clear documentation


8. Rule 10b5-1 Trading Plans


For corporate insiders, Rule 10b5-1 plans allow pre-scheduled sales under defined terms. These plans may help support compliance while reducing exposure gradually.


Common considerations:


  • Establishing the plan during permitted periods

  • Defining clear sale parameters

  • Understanding restrictions on modifications


9. Private Secondary Market Transactions


Investors holding illiquid private company shares may be able to sell a portion of their holdings in private secondary markets. This can provide partial liquidity and reduce exposure.


Key factors include:


  • Reviewing transfer restrictions

  • Obtaining an independent valuation

  • Working with experienced intermediaries


10. Income Focused Strategies


Covered call writing and dividend-focused approaches may help generate income from a concentrated position. Income generated through these methods may be used to support diversification goals.


Considerations include:


  • Selecting strike prices and time horizons

  • Understanding tax implications of option premiums

  • Coordinating reinvestment strategies


Integrating Strategies Into a Broader Plan


Each technique offers different benefits and considerations. A combination of approaches, used thoughtfully and coordinated with financial, tax, and legal professionals, may help support long-term goals while managing concentration-related risks.


Regular reviews, planning discussions, and documentation can support a disciplined and well-structured approach.



Investment advice offered through Stratos Wealth Partners, Ltd., a registered investment advisor. Stratos Wealth Partners, Ltd and Parkview Partners Capital Management are separate entities. Neither Stratos nor Parkview Partners Capital Management provides legal or tax advice. Please consult legal or tax professionals for specific information regarding your individual situation. Investing involves risk, including possible loss of principal. The information presented is for educational purposes only and should not be interpreted as individualized investment, tax, or legal advice. Past performance is not indicative of future results. For more information, please review our Form ADV, available upon request.


 
 
 

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Financial Advisor, Investment Advisor, High Net Worth, Wealth Management, Tax Planning, Risk Management, Financial Coordination, Retirement Planning, Charitable Giving, Columbus Ohio, Parkview Partners Capital Management

291 East Livingston Ave.
Columbus, OH 43215


Phone: (614) 427-2132

Fax: (614) 427-2132

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