Many investors hold substantial positions in companies like Google, Apple, Microsoft, Meta, or Amazon. These holdings may result from years of equity compensation, long-term investing, or deep conviction in the company. In many cases, the investor has a long-term plan to gradually diversify out of that position, but may not want to sell right now. That hesitation could stem from capital gains taxes, uncertainty around timing, or even behavioral biases like anchoring or emotional attachment to the stock.

While diversification is often the ultimate goal, the question becomes: what should you do in the meantime?

There are well-established strategies that allow you to generate income and manage risk exposure, without immediately selling your shares. These strategies are conservative in nature and widely used by institutional and high-net-worth investors alike.

Three effective tools are:

1. Covered Calls
   
   
2. Put Spreads
   
   
3. Collars
   
   

Each can be tailored to your specific goals, whether you aim to hold long-term, create a recurring income stream, or gradually reposition your portfolio in a tax-efficient way.

1. Covered Calls: Generate Income and Maintain Flexibility

A covered call allows you to earn income on stock you already own by selling someone else the right to purchase it from you at a specified price and time. It’s one of the most consistent and conservative income strategies available.

How it works:

• You own the shares (e.g., 3,000 shares of Microsoft).
  
  
• You sell 30 call option contracts (each covering 100 shares) at a strike price above the current market value.
  
  
• You receive an upfront premium as income.
  
  
• If the stock stays below the strike, the options expire, and you keep both the stock and the income.
  
  
• If the stock rises above the strike, your shares may be sold at the agreed price — unless you choose to roll the position.
  
  

You remain in control:

• If the stock approaches the strike price and you do not want to sell, you can roll the option, closing the current call and opening a new one at a later expiration or higher strike.
  
  
• If reducing your concentrated position is part of your long-term plan, allowing the shares to be called away provides a structured, tax-aware method for diversification.
  
  

Example:

You own 3,000 shares of Apple at $180.

You sell 30 call contracts at a $190 strike, expiring in 30 days, for $2.00 per share.

This generates $6,000 in income (30 contracts × 100 shares × $2.00).

If Apple stays below $190, you retain the shares and keep the premium.

If it exceeds $190, your shares may be sold at that price — locking in gains — and you still keep the income.

Why this strategy is valuable:

Covered calls monetize periods of low volatility or sideways movement by generating consistent cash flow. They also allow investors to define a sell price while collecting income along the way,  without making a permanent decision upfront.

2. Put Spreads: Define and Limit Downside Exposure

A put spread helps reduce downside risk while controlling the cost of protection. It’s useful when you’re concerned about near-term volatility but don’t want to overpay for full insurance.

How it works:

• You buy a put option slightly below the current stock price to protect against declines.
  
  
• You simultaneously sell a second put at a lower strike to offset part of the cost.
  
  
• This creates a defined protection zone over a fixed time period.
  
  

Example:

You own 3,000 shares of Amazon at $180.

You buy 30 puts at a $175 strike and sell 30 puts at a $165 strike, both expiring in 30 days.

This gives you $10 per share of protection if the stock drops, minus the cost of the spread.

If Amazon stays above $175, both options expire, and your cost is limited to the net premium paid.

Why this strategy is valuable:

Put spreads are ideal for hedging short-term events (like earnings or macro risks) while managing cost. They allow you to cap potential losses without selling your position, and do so with much lower cost than buying protective puts alone.

3. Collars: Combine Income and Protection at Low or No Cost

A collar is a balanced strategy that combines both a covered call and a protective put. This enables you to define both a downside floor and an upside cap — usually at minimal or no net cost.

How it works:

• You sell a call option to generate income.
  
  
• You use that income to purchase a put option, creating a risk-managed band around your position.
  
  
• This limits both upside and downside but allows you to hold your stock through volatility.
  
  

Example:

You own 3,000 shares of Meta at $450.

You sell 30 call contracts at a $475 strike and buy 30 put contracts at a $430 strike, expiring in 30 days.

If Meta rises above $475, your shares may be sold at that level.

If it falls below $430, the puts provide downside protection.

If Meta remains within that range, the options expire and you retain both your shares and the net premium.

Why this strategy is valuable:

Collars are ideal when you want to maintain ownership through uncertain periods while protecting gains and avoiding large drawdowns. They work especially well when structured to be cost-neutral,  enabling participation with guardrails.

Why These Strategies Matter

Concentrated stock positions can create:

• Exposure to large, unhedged losses
  
  
• Missed opportunities for generating yield
  
  
• Constraints around when and how to diversify
  
  

By implementing structured strategies like covered calls, put spreads, or collars, you can:

• Enhance portfolio income without giving up ownership
  
  
• Mitigate risk exposure during volatile periods
  
  
• Align your position with your broader financial plan, whether holding or reducing exposure over time
  
  

These are not speculative tactics. They are prudent, rules-based tools that transform your concentrated position into a more productive, resilient, and intentional part of your portfolio.

“For example, selling covered calls every 45 days can create a recurring stream of income that, over a full year, may add up to a substantial return, greater than what you would have earned by simply holding the shares without taking any action.”

Similarly, a well-structured put spread strategy can offer targeted downside protection when you anticipate turbulence, such as around earnings, policy announcements, or macro uncertainty, and can even generate net income if structured as a credit spread.

These strategies help you avoid the two common extremes: doing nothing and remaining overexposed, or rushing to sell and triggering tax consequences. Instead, they offer a middle path: retain ownership, increase control, and enhance outcomes over time.

Next Steps: Align the Strategy to Your Goals

If you’d like to explore this further, we can:

• Review your current concentrated stock holdings and cost basis
  
  
• Assess your risk profile, time horizon, and income needs
  
  
• Implement a strategy tailored to your objectives — from income generation to downside protection
  
  
• Monitor and adjust it over time as your situation evolves
  
  

Bottom line: You don’t need to sell your shares, and you don’t need to leave them unproductive. With the right structure, you can put your stock to work, in a way that supports your broader financial goals.

At Prospera, we help you design, implement, and manage these strategies through a rules-based, personalized approach, so your concentrated stock position becomes an active, intentional part of your overall financial plan.

Plan Your Tranquility

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.