Option Overlays | Concentrated Positions

Option strategies for concentrated, appreciated positions.

When a portfolio holds a large appreciated position, option strategies can be used to either generate income or manage downside risk.

The Situation

When a single position outgrows the plan.

DGS uses option overlays selectively to address specific portfolio objectives. Depending on the client situation, options may generate additional income, manage downside risk over a defined period, or create flexibility for positions expected to remain in the portfolio.

AAPL

SIT · 01

A single stock has become too large.

An appreciated holding now dominates the portfolio, concentrating risk in one name well beyond the client's intended exposure.

Strategy brief

The position can't be sold due to taxes.

A large embedded gain makes an outright sale prohibitively expensive from a tax perspective resulting in longer than intended ownership.

Strategy brief

OVERLAY

SIT · 03

Put your concentrated position to work.

Rather than sit idle, the holding can generate income or fund protection, turning a static risk into a managed, productive asset.

Strategy brief

The mechanics

Ways DGS uses option strategies.

INCOME GENERATION

Covered calls

Writing calls against the position to create cash flow while continuing to hold the stock, accepting a cap on upside in exchange for income.

+$24,300

Premium income received

$182.40

Break-even per share

$205.00

Upside capped at strike

RISK MANAGEMENT

Cashless Collars

Using puts to reduce downside exposure over a defined period without selling the holding, financing protection by giving up some upside.

−$31,500

Downside floor (long put)

$248.00

Break-even per share

+$58,400

Max upside (short call)

Get an advisory call directly from our CIO.

Bring a real client situation you’re working on - concentrated stock, a legacy portfolio, a complex tax picture, or a cash implementation. We'll workshop it on a 30-minute call and follow up with a detailed implementation plan.

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