Managing Concentrated Stock Risk with a Collar Strategy

Collar Strategy: A smart, structured approach to protecting your wealth and building diversification.

At Abbey Street, a common concern we hear from prospective clients is this:
“I have too much of my wealth tied up in one stock, and I don’t know what to do about it.”

Whether it’s from founding a business, being an early employee at a successful company, or simply holding a long-term position that’s grown significantly, concentrated stock risk is real — and can be unsettling.

Clients often ask:

What happens if the stock drops?
What are my options to diversify without triggering a large tax bill?
How do I balance my long-term belief in this company with the need for financial stability?

One strategy we use in these situations is the collar.

What is a Collar Strategy?

A collar is an options-based technique that helps limit the downside risk of a stock — while also capping the upside. It can be used to help lock in a value range and create clarity in an otherwise unpredictable market.

Here’s how it works:

You buy a put option to protect against losses if the stock falls below a certain price.
You sell a call option to give someone else the right to buy your stock if it goes above a certain price.

Because the premium earned from selling the call can offset the cost of the put, collars can often be implemented at low or even no net cost.

A Simple Example

Let’s say you hold $1 million of a stock currently trading at $105. You’re concerned about volatility but not ready to sell. You could:

Buy a put at $95 to protect your downside
Sell a call at $115 to cap your upside

If the stock drops below $95, the put helps preserve your value. If it rises above $115, you may be required to sell — but at a gain. In either case, you’ve created a controlled outcome.

Why Use a Collar

A collar offers more than just downside protection — it unlocks additional planning strategies:

Strategic Borrowing: Use the collared position as collateral to diversify into other investments
Income Generation: Sell additional call options for recurring premium income
Behavioral Benefits: Reduce emotional decision-making in volatile markets
Exit Planning: Use as a bridge toward a tax-efficient liquidity event

For many of our clients, collars serve as a transition tool — giving them the confidence to move from a concentrated position toward a more diversified, resilient wealth plan.

When is it a Good Fit?

When Is It a Good Fit?

A collar strategy is most effective when:

You have a significant, concentrated position in one stock
You are seeking downside protection without triggering capital gains
You’re comfortable giving up some upside in exchange for stability
You have a specific timeline for selling or creating liquidity

Work with a Professional

Options strategies like collars are not “do-it-yourself” planning. They involve:

Understanding option pricing and tax implications
Evaluating the right strike prices and durations
Aligning with your broader investment and estate plan

At Abbey Street, we specialize in helping clients manage complex wealth situations. If you’re facing concentrated stock risk and want to explore how a collar — or another strategy — could support your goals, we’re here to help.

Let’s talk.

If you’re ready to create stability, reduce risk, and start building toward diversification, schedule a conversation with our team.

Learn More

Investopedia.com –https://www.investopedia.com/terms/c/collar.asp

Abbey Street, LLC (“Abbey Street”) is a Registered Investment Advisor (“RIA”) registered with the SEC. Registration as an investment adviser does not imply a certain level of skill or training, and the content of this communication has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority. Abbey Street renders individualized responses to persons in a particular state only after complying with the state’s regulatory requirements, or pursuant to an applicable state exemption or exclusion. All investments carry risk, and no investment strategy can guarantee a profit or protect from loss of capital. The information contained in this article is intended to provide general information about Abbey Street and its services. It is not intended to offer investment advice. Investment advice will only be given after a client engages our services by executing the appropriate investment services agreement and shall be subject to the terms and conditions therein. Information regarding investment products and services are provided solely to read about our investment philosophy and our strategies and to be able to contact us for further information. You should not rely on any information provided on our web site in making investment decisions. Market data, articles and other content discussed in this video or article are based on generally-available information and are believed to be reliable. Abbey Street does not guarantee the accuracy of the information contained in this video or article. The information is of a general nature and should not be construed as investment advice and relied upon in making investment decisions. Abbey Street will provide all prospective clients with a copy of our current Form ADV, Part 2A (Disclosure Brochure) prior to commencing an advisory relationship. However, at any time, you can view our current Form ADV, Part 2A at adviserinfo.sec.gov. In addition, you can contact us to request a hardcopy.