1
Stock is At or Above $720 at Expiration Option is Exercised
Investor retains the $8,000 premium and sells 1,000 shares at $720.
Creating & Preserving Wealth: Managing Concentrated Stock Exposure
Published on May 22, 2026
For many investors, wealth begins with a concentrated position. The next step is managing that wealth thoughtfully in the context of broader financial goals.
When a single position represents a meaningful share of liquid net worth (for example, 35% or more), it is important to establish a framework that allows for continued participation in future appreciation while also helping to reduce concentration risk. In our experience, selling a concentrated position outright is seldom the most compelling answer, as doing so may introduce unnecessary tax consequences, reduce flexibility, or work against longer-term planning goals. More often, the better course is a tailored approach that reflects the full picture — including risk tolerance, liquidity needs, tax considerations, and overall portfolio structure.
Depending on the circumstances, a thoughtful framework may draw on several strategies used in combination, including:
- Identifying positions that can be sold with minimal tax impact.
- Prioritizing sales of newly acquired shares, where it is less likely to have material taxable gains.
- Establishing an annual diversification target for tranches of sales to reduce exposure over time.
- Incorporating covered call strategies that plan for sales only at a predetermined price and allow for income generation while shares trade below that price.
- Considering charitable gifting of appreciated shares, where aligned with philanthropic goals and individual tax circumstances.
Not every strategy will be relevant in every case. More often, the most effective approach is one that combines several tools to help manage concentration risk, improve diversification, and preserve flexibility within the context of a broader wealth plan.
Strategy in Focus: Covered Calls
For investors who value flexibility, control over sale prices, and current income, selling covered calls can offer a practical way to diversify gradually without committing to sell shares at today’s market price.
Key Terms
Covered call: An agreement to sell shares you already own at a specified price in exchange for a payment received upfront.
Premium: The payment received upfront for selling the option. (This is generally taxed as income.)
Strike price: The agreed-upon price at which the shares may be sold.
Expiration date: The last date on which the option may be exercised. If it is not exercised by that date, the option expires.
Covered Calls in Practice
As an example, assume an investor owns 5,000 shares of Company X, currently trading at $650. The investor would be comfortable selling 1,000 of those shares if the stock reached $720. To express that view, the investor writes ten covered call contracts, representing 1,000 shares, with a $720 strike price, a March 20 expiration, and an $8 per share premium. As shown below:
Two Potential Outcomes
2
Stock Finishes Below $720 at Expiration Option Expires Worthless
Investor retains the $8,000 premium and continues to own 1,000 shares.
Important Considerations
Covered calls can be a useful planning tool in certain circumstances, but they are not appropriate for every investor or every concentrated stock position. Thoughtful implementation requires attention to practical details including option liquidity, implied volatility, early assignment risk, tax consequences, and how the strategy fits within the broader portfolio.
Considerations include:
- Limited upside: If the stock rises above the strike price, appreciation beyond that level is generally forfeited.
- Shares may be called away sooner than expected: In certain circumstances, assignment can occur before expiration.
- Downside risk remains: The option premium received may provide only a limited cushion if the stock declines.
- Tax treatment requires coordination: Carefully review premium income, assignment timing, and capital gains treatment.
- Employer policies may apply: Investors holding employer stock should review trading policies, hedging restrictions, and any blackout or trading-window requirements before implementing an options strategy.
- Portfolio context matters: Covered calls should complement broader planning objectives rather than replace a long-term asset allocation framework.
For these reasons, thoughtful implementation typically requires coordination among your advisory team and, where appropriate, your tax and legal professionals.
A Planning-First Approach to Concentrated Positions
Concentrated stock decisions are rarely just about the stock itself. They often intersect with lifestyle spending, legacy goals, philanthropy, estate planning, charitable intentions, liquidity needs, and the desire to reduce dependence on a single company. That is why decisions around concentrated holdings are often best evaluated through the lens of overall wealth management. The objective is not simply to reduce concentration but to do so thoughtfully and in a way that reflects the investor’s larger financial picture.
For investors evaluating their concentrated stock positions, the Osterweis Capital Management Private Client team can help assess the relevant tradeoffs within the context of a broader wealth plan. To set a time to meet, call us at (415) 434-4441 or email clientrelations@osterweis.com.
About the Authors:
Chris Zand, J.D., CFP®, joined Osterweis in 2018 to lead the firm’s wealth management and investment management services for high net worth and ultra-high net worth individuals and families. As the head of Private Client, Chris applies his passion for deeply engaging with clients to help them meet their long-term goals through their investments and strategic planning.
Jasmine Shen, CFA, is a Senior Research Analyst for the Osterweis core equity strategy. In this role she researches companies and identifies investment opportunities that can drive long-term portfolio growth. She loves learning about diverse business models and distilling the information into actionable insights.
About Osterweis Capital Management
Based in San Francisco, Osterweis Capital Management is an independent fiduciary investment adviser founded in 1983. We serve high net worth individuals and families in the SF Bay Area and nationwide through a planning-first approach to wealth management and portfolio construction. Our Private Client team helps clients navigate complex financial decisions — including concentrated stock positions, equity compensation, stock options, and tax-aware diversification — through customized portfolios and high-touch service. Backed by institutional-caliber investment capabilities and a boutique client experience, Osterweis helps clients align their portfolios with long-term goals, liquidity needs, and risk tolerance.
Osterweis Capital Management does not provide tax, legal, or accounting advice. In considering this communication, you should discuss your individual circumstances with a professional in those areas before making any decisions.