Exchange Fund –
Diversification
Exchange your stock for a position in a diversified fund with professional managers. Exchange funds may be suitable for accredited investors who seek immediate diversification, potential growth, and deferred capital gains, and who do not anticipate or prioritize any future upside or dividend returns from their original concentrated position.
Participation typically involves a multi-year holding period and is generally limited to accredited investors. Investors forgo any future appreciation and dividends from their original stock in exchange for the potential growth of the new basket of stocks. They should seek to understand the fund’s management fees, as these will impact its performance. Not all stocks can be exchanged.
Optic Single Stock – Covered Call Income
Optic Single Stock is an actively managed covered call overlay program.
The strategy may be right for investors who seek income generation, retained stock ownership, and dividend capture (when available).
The upside is limited, and if the underlying stock appreciates, calls may need to be repurchased, which will affect performance. Downside hedging is limited to income generation unless puts are purchased (collaring), which will also affect performance.
Optic Equity Access –
Immediate Liquidity
Optic Equity Access combines a collar option position with a loan to generate immediate liquidity, both similar to and different than a variable prepaid forward contract. The strategy helps investors achieve liquidity (up to 90% can be released) while offering some downside protection and continued ownership.
It may be good for investors who want to use the cash to diversify or for other purposes while maintaining ownership and the right to dividends (as available).
The collar establishes a floor and a ceiling for the stock price, which will affect performance. Margin interest and other fees apply.
Free, No-Obligation Consultation
Does your investment plan generate sufficient income? Minimize taxes and fees? Work for you, not your broker? Schedule your complimentary consultation today.
Concentrated Stock Positions
Six investing strategies for investors who wish to keep their stock while achieving their other investing goals
Frequently Asked Questions
A concentrated stock position occurs when a single stock makes up a large portion of your overall investment portfolio, increasing your exposure to company-specific risk.
Concentration risk can lead to significant losses if the company’s stock underperforms. Diversification helps protect your wealth across different sectors and asset classes.
An exchange fund allows you to swap your individual stock for a share of a diversified portfolio, deferring capital gains taxes and spreading out risk.
You can use strategies like exchange funds, covered call overlays, or option-collar-secured lending to manage risk and gain liquidity while still holding your shares.
Yes, using a covered call strategy like Optic Single Stock, you can sell call options on your shares to generate premium income while retaining ownership.
Optic Equity Access uses a collar strategy and secured loan to unlock up to 90% of your stock’s value, offering liquidity without triggering an immediate tax event.
Covered calls cap your upside potential and offer limited downside protection unless paired with protective puts. This strategy may also underperform in volatile markets.
No, Optic Equity Access is designed to be tax-efficient, but it’s important to consult with a tax advisor to understand your unique situation.
Exchange funds are typically limited to accredited investors and may require a multi-year holding period. Not all stocks qualify for contribution.
The best strategy depends on your goals—whether that’s income, diversification, or liquidity. Speaking with a financial advisor can help tailor the right approach for your situation.
Important Disclosures
Watts Gwilliam & Company, LLC, which includes its Optic Asset Management division, is a registered investment advisor. Registration does not imply endorsement or any specific skill level. The strategies above carry risk and may not be suitable for all investors.
Options Trading Risks
Options involve risk and may not be suitable for all investors. Loss of principal may occur. Before trading options, you will receive the Characteristics and Risks of Standardized Options document, which can be found at www.theocc.com. You must be approved for options trading by the custodian before implementing an options strategy with Watts Gwilliam or Optic Asset Management.
Transaction Costs and Fees
Options trading involves significant costs and fees which will impact the overall performance of the strategy. It is important to understand these expenses and consider them when evaluating the potential return on an options strategy.
Potential for Underperformance
Some Optic strategies, like Optic Single Stock, seek to provide income through the receipt of option premiums, while attempting to provide you with appreciation in your underlying stock or index. While the goal of those strategies is to participate in as much upside as possible, the performance can’t be guaranteed. Portfolios may underperform in various market conditions.
Collar Strategy
Optic Equity Access utilizes a collar, which includes a long put option and a short call option, to help secure a portfolio margin loan against a long stock position. The use of the collar may limit profit potential if the security’s price rises above the call’s strike price and may provide limited downside protection only up to the put’s strike price.
Dual Investment Risks
Reinvesting Optic Equity Access loan proceeds into other securities creates risks, including increased portfolio leverage and exposure to market volatility, which could amplify losses. Both the concentrated stock position used as collateral and the reinvested proceeds may lose value at the same time. The new investments may lack liquidity and may impact the ability to repay the loan. Reinvesting in assets similar to the original concentrated stock may not yield the intended diversification.
Loan-Related Risks
In Optic Equity Access, the cash received is a loan backed by your securities, with variable interest rates and repayment terms. Interest and fees will affect the Strategy’s net performance. You must repay the loan at collar maturity, using either securities or cash. The long stock position serves as collateral, and failure to meet the loan terms could result in a margin call or loss of collateral. Accounts using Portfolio Margin must maintain over $100,000 in equity. If Portfolio Margin is terminated, you’ll face
higher Reg T margin requirements. Read the custodian’s loan disclosures carefully.
Double Fees-Conflict of Interest
In Optic Equity Access, you are charged the same management fee on both the long value of the stock position (adjusted for the net value of the collar) without any offset for the loan, and on any loan proceeds that are reinvested and managed by us. The loan frees up liquidity that, when we invest it on your behalf, results in us benefitting by charging two sets of fees. We therefore have a conflict of interest in recommending this strategy.
Tax Risks
Neither Watts Gwilliam & Company, LLC, nor its Optic Asset Management division, provides tax advice. You should consult with a tax advisor before participating in Optic Equity Access transactions, including any rollover transactions.
The IRS’s ‘constructive sale’ rules under Section 1259 of the Internal Revenue Code are complex and ambiguous, lacking clear Safe Harbor guidelines. If the IRS determines that an initial or subsequent Optic Equity Access transaction constitutes a constructive sale, you may be required to recognize any previously unrealized gains on the underlying asset immediately, rather than at its maturity. Neither Watts Gwilliam & Company, LLC, nor its Optic Asset Management division, will be liable for any IRS
decisions requiring you to recognize unrealized gains or for any related taxes, penalties, fines, or fees you may owe.
Prepaid Variable Forward Contracts
The Optic Equity Access strategy is not a prepaid variable forward (PVF) contract.