When Selling Isn't the Answer: Managing Concentrated Company Stock Without Triggering the Tax
There's a lot of good advice out there about diversifying a concentrated stock position — sell on a schedule, take the emotion out of it, don't try to guess the top. I believe in all of it. But it skips over a real situation a lot of executives and owners are actually in:
What if you can't sell right now? Or shouldn't?
Maybe your shares are restricted or inside a lockup. Maybe you're an insider and the trading window is closed more often than it's open. Maybe the embedded gain is so large that selling a big block this year would push you into a tax bracket you'd rather step into gradually. Or maybe you simply still believe in the company and aren't ready to walk away from the upside.
In every one of those cases, the usual advice — "just sell some" — doesn't fit. But the alternative people default to is worse: they do nothing, tell themselves they're being patient, and leave a position that could cut their net worth in half fully exposed to a single company's worst week.
There's a whole toolkit between "sell it and pay the tax" and "hold it and hope." It's the part of concentrated-stock planning that rarely gets talked about, so let's talk about it.
First, define the problem you're actually solving
These tools get misused because people reach for one without naming what's bothering them. There are really four different problems hiding inside "I have too much of one stock," and they call for different answers:
Downside risk — you're afraid of a crash before you can diversify.
Liquidity — your wealth is on paper and you need cash for life, taxes, or another investment.
Tax timing — you're willing to diversify, but not to realize a massive gain all in one year.
True diversification — you want to actually reduce single-stock exposure, not just manage around it.
Name which one (or which combination) you're solving. That alone prevents most of the expensive mistakes.
The tools, and the honest trade-off on each
Protective puts — buying downside insurance. You buy put options on the stock, which sets a floor under its value for a period of time. You keep the shares, the dividends, the vote, and all the upside; you've just paid a premium for a price you can't fall below. It's the cleanest fix for the "I'm afraid of a crash before my window opens" problem. The trade-off is simply cost — insurance isn't free, and if the stock behaves, the premium is gone.
Collars — protection you don't pay cash for. A collar pairs that protective put with a call option you sell. The premium you collect for the call offsets the cost of the put — sometimes entirely. In exchange, you give up the upside above the call's strike. You've boxed the stock into a range: protected on the downside, capped on the upside, for the length of the contract. It's a powerful way to hold a position safely through a lockup or a tax-timing window. Two cautions matter here. If the collar is drawn too tightly, the IRS can treat it as a "constructive sale" and tax you as if you'd sold — so the structure has real rules. And if you're an insider, options strategies run into the same blackout and disclosure constraints your stock sales do.
Covered calls — income, with a leash. Selling calls against your position generates income and a small cushion, but caps your upside and can force a sale if the stock runs. For a holder who wants to be paid to wait and wouldn't mind trimming at a higher price, it has a place. It is not, by itself, downside protection.
Exchange funds — diversifying without selling. This is the one most people have never heard of. You contribute your appreciated shares into a pooled partnership alongside other investors with their own concentrated positions. After a holding period — generally at least seven years — you can exit with a diversified basket of stock instead of your single name, without having triggered a taxable sale to get there. It directly attacks the "true diversification" problem while deferring the gain. The trade-offs are real and worth respecting: your money is locked up for those years, these funds are limited to accredited/qualified investors, they carry fees and must hold some illiquid assets by design, and you give up control over the mix. The gain is deferred, not erased — your low basis carries over to the new basket. For the right position, it can be the single most elegant tool on this list. For the wrong one, the lockup is a trap.
Borrowing against the position — liquidity without a sale. A securities-based line of credit lets you borrow against your shares to raise cash — for a tax bill, a home, or to fund an entirely separate, diversified investment — without selling and without a taxable event. Used deliberately, it solves the liquidity problem cleanly. Used carelessly, it's dangerous: if the stock falls, you can face a margin call at the worst possible moment, forcing the very sale (at the very price) you were trying to avoid. Leverage on top of concentration is concentration with the volume turned up. This is a tool for a specific job, not a lifestyle.
Charitable remainder trusts — for the charitably inclined. If giving is already part of your plan, contributing appreciated stock to a CRT lets the trust sell it without an immediate tax hit, pay you an income stream for years, and leave the remainder to charity — while giving you a partial deduction today. It's a diversification tool and a tax tool and a giving tool at once, which is exactly why it's worth understanding before a big sale, not after.
For business owners, the principle travels — the tools don't
If your concentration is a private company you're not ready to sell, you can't collar it or drop it into an exchange fund. But the logic is identical: protect and diversify everything around the asset you can't yet move. That means building real liquidity outside the business, not personally guaranteeing every obligation, and making sure the wealth you've already pulled out is genuinely diversified rather than parked back into the same industry. The mistake is letting an illiquid, un-hedgeable concentration convince you that nothing can be done. Plenty can — just not with options.
The point
None of these are free, and none are one-size-fits-all. Every one of them trades away something — upside, liquidity, control, or simplicity — in exchange for protection or deferral. Several (collars, exchange funds, CRTs, borrowing) have strict rules and genuine risks, and a few can backfire badly if they're built wrong. This article is a map of what's possible, not a recommendation to use any of it.
But the headline is worth holding onto: being unable or unwilling to sell is not the same as being stuck. If a single stock is carrying too much of your future, there is almost always a way to take risk off the table, raise cash, or start diversifying — without the all-or-nothing choice between a giant tax bill and a giant gamble.
The move that's never on the list is the one most people choose by default: nothing.
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Forecast Capital Management works with executives and business owners on concentrated-stock and equity-compensation decisions. This article is educational and not individualized tax, legal, or investment advice. Options, exchange funds, lending, and trusts each carry specific risks, eligibility rules, and tax consequences — including constructive-sale rules and margin risk — and should be reviewed against your own situation before you act.
