Some clients come to us with concentrated stock and a clear goal of diversifying. Others come to us with the opposite instruction: I am not selling.
One client had spent the better part of two decades at a large technology company. Their shares carried an extremely low cost basis, and selling meaningful amounts would have triggered substantial capital gains taxes. Beyond the tax math, they simply believed in the company and wanted to keep holding. What they wanted from us was a way to make the position work harder without giving it up.
We built a covered call program around a portion of their shares. By selling call options against stock they already owned, the client collected option premiums as income. Because the goal was to keep the shares, we structured the program conservatively, selecting strike prices well above the current stock price and shorter contract terms, which reduced the likelihood of shares being called away. When the stock rallied toward a strike, we rolled the contracts up and out rather than letting shares go.
The result was a durable income stream from a position that paid only a modest dividend on its own. The premiums supplemented the client's cash flow and reduced the pressure to sell shares to fund spending, which is exactly what they wanted to avoid.
We were direct about the tradeoffs. Covered calls cap the upside on covered shares during each contract, option premiums are taxable, and a fast-rising stock requires active management to avoid unwanted sales. Managing those tradeoffs is the work, and it is ongoing. For this client, the exchange was well worth it: they kept the stock they never intended to sell, and it finally started paying them to hold it.
DISCLOSURES:
The scenarios described are illustrative and reflect composite situations based on actual client experiences, with identifying details and figures changed. They are provided for informational purposes only, are not representative of the experience of all clients, are not a guarantee of future results, and individual results will vary based on each client's specific circumstances.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
Consilio Wealth Advisors, LLC ("CWA") is an investment adviser registered with the U.S. Securities and Exchange Commission ("SEC"). Registration does not imply any particular level of skill or training. CWA provides investment advisory services to clients nationally and notice-files in those states where notice filing is required. CWA renders individualized responses to persons in a particular state only after complying with all applicable regulatory requirements, or pursuant to an applicable exemption or exclusion.
