Wealth is often built through concentration. Maybe you joined a fast-growing tech company early and received a large equity grant. Maybe you worked more than a decade at a large-cap company and accumulated stock. Or maybe you simply held onto shares of a business that compounded for years. The result: a highly concentrated stock position that now represents the bulk of your wealth.

On paper, this feels like success. But in practice, it creates a dilemma. You want to protect what you’ve built, generate some cash flow, and maybe even reduce risk, but you don’t necessarily want to sell and trigger large taxes, or lose exposure to a company you still believe in.

This is where option strategies such as covered calls, put spreads, and collars, can transform a concentrated stock position from something fragile into something more resilient.

Why Concentrated Positions Are Risky

Concentration is a double-edged sword. The same force that built wealth can also destroy it:

• Company Risk: Even great businesses stumble. Earnings disappointments, regulatory changes, or market rotations can slash valuations overnight.
  
  
• Behavioral Risk: Investors often suffer from “anchoring” (thinking the stock will always go back to past highs) and “overconfidence” (believing the company is too strong to fail). These biases make it harder to trim positions at the right time.
  
  
• Lifestyle Risk: With too much of your net worth in one place, your financial security becomes tied to a single stock’s price swings. A downturn could affect not just your portfolio but also your peace of mind.
  
  

Rather than being stuck between doing nothing or selling outright, there’s a middle ground: put your stock to work through structured option strategies.

1. Covered Calls: Create Income From What You Already Own

A covered call means selling the right for someone else to buy your stock at a set price (the strike) in exchange for cash today (the premium). It’s a way of getting paid while holding shares.

• How it works: If you own 3,000 shares of Apple at $180, you might sell 30 call options at a $190 strike for $2 per share. That generates $6,000 immediately.
  
  
• If the stock stays below $190: You keep both your shares and the income.
  
  
• If the stock rises above $190: Your shares may be sold at that level, locking in gains, while you still keep the premium.
  
  

Why it matters for concentrated investors: Covered calls can act like a “cash flow machine,” turning dormant stock into a monthly income source. They also impose a bit of discipline, if shares get called away, you’ve effectively diversified without being forced to make an emotional sell decision.

2. Put Spreads: Protect Against the Unexpected

Owning a stock is exciting when it’s climbing, but nerve-wracking when it falls. Buying protective puts (insurance against a drop) can be expensive, but a put spread makes protection more affordable.

• How it works: Suppose Amazon trades at $180. You buy puts at $175 (giving you the right to sell at that price) and sell puts at $165 (obligating you to buy if it falls that low). The premium from selling the lower put helps offset the cost of the higher one.
  
  
• Outcome: If Amazon falls between 175 and 165, you are protected, the hedge reduces the losses in that range. If it drops below 165, the protection stops, and you begin taking the full loss again, though overall your loss is still reduced by the value of the spread.

Why it matters for concentrated investors: Put spreads are like paying for targeted insurance only when you need it, earnings season, regulatory events, or times of market stress. They keep the downside in check without draining portfolio income.

3. Collars: Income + Protection, in One Step

A collar combines both tools, selling a call to bring in a premium and using that premium to buy a protective put.

• How it works: Imagine you own Meta at $450. You sell a call at $475 and buy a put at $430, both expiring in 30 days. Now you’ve created a defined “trading range”:
  
  
• Upside capped at $475.
  
  
• Downside protected at $430.
  
  
• Cost: Often close to zero, since the income from the call funds the put.
  
  

Why it matters for concentrated investors: A collar gives you the confidence to hold a stock without being exposed to its full volatility. It’s especially valuable when you want to preserve upside exposure but cannot afford a large drawdown.

Bringing It All Together

Concentrated stock positions are both an opportunity and a vulnerability. The challenge isn’t just financial, it’s psychological. Doing nothing leaves you exposed. Selling outright may feel too final or too costly. Option strategies offer a third way:

• Generate income without reducing your holdings immediately.
  
  
• Protect against painful drawdowns while staying invested.
  
  
• Create structured opportunities to diversify gradually, on your own terms.
  
  

For investors who’ve worked hard, taken risks, and built wealth through concentrated positions, the goal now is to make that wealth more durable. Covered calls, put spreads, and collars are not about gambling, they’re about turning fragile concentration into a resilient, income-generating strategy.

The Real Next Step: Financial Planning

As powerful as covered calls, put spreads, and collars can be, they are tactical tools, not the final answer.

The true solution for someone holding a concentrated position is twofold:

1. A Comprehensive Financial Plan
   A financial plan connects your concentrated stock holdings to your broader life and financial objectives. It defines how much risk you can carry, how much liquidity you need, and how to align your portfolio with your goals over time. Without a plan, even the best option strategies remain short-term fixes.
   
   
2. A Definitive Diversification Strategy
   Concentration is not sustainable forever. At some point, you need a path to diversification. That doesn’t mean selling everything tomorrow, it means building a gradual, tax-aware, structured plan to reduce exposure over time. This might include:
   
   

• Trimming positions in stages.
  
  
• Redeploying proceeds into a globally diversified portfolio designed for durability.
  
  

Options can buy you time, manage volatility, and create income, but only a plan can solve the issue permanently. Together, a financial plan and a diversification strategy give you clarity, confidence, and control, transforming wealth built on a single stock into a foundation for lasting freedom.

Life without a plan is stressful, reactive, and often dangerous. Without a framework to guide decisions, every financial choice becomes a short-term reaction to whatever is happening in the moment. That level of uncertainty takes a toll:

• Constant anxiety – Worry about the future becomes background noise you can’t turn off. Even when things are going well, the fear of “what if” lingers.
  
  
• Decision paralysis – Fear of making a mistake leads to doing nothing. Opportunities to diversify or reposition pass by because the default response is hesitation.
  
  
• Impulse and reaction – When action does happen, it’s usually reactive: selling in a panic, chasing a hot trend, or making changes without a long-term strategy.
  
  

The real cost isn’t just missed returns, it’s the erosion of confidence, clarity, and peace of mind. A well-structured plan replaces fear with purpose, giving you a roadmap to follow even when markets are volatile or life circumstances change.

At Prospera, our role isn’t just to execute option strategies, it’s to help you design a detailed plan that integrates protection and diversification. If you’re holding a large position and want to move from fragile wealth to lasting tranquility, let’s talk about how to get there step by step.

That’s what Plan Your Tranquility™ means: achieving prosperity, but doing it in a way that gives you peace of mind.

Talk to Prospera. We’re here to help you stay grounded, informed, and focused on what matters.  www.prospera.investments 

This communication is provided for informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security. Investors should consult their financial advisor to assess whether any investment is appropriate for their individual circumstances.