Popular Overlay Structures for Concentrated Positions
Options enable advisors to structure a path to desired outcomes.
Swan portfolio overlays can serve a wide range of objectives for clients with concentrated positions in nearly any market environment, such as:
Client is concerned about downside risk in concentrated stock position.
|
Objective |
Seeks downside risk reduction in a "buffer" zone, upside cap, lowest / no-cost |
|
Client Risk/ Reward Profile |
Conservative / focused on a defined outcome |
|
Ideal Market Environment |
Range-bound, bear market |
|
Underlying position |
Long Stock |
|
Option Structure |
Put Spread Collar |
|
Income Program |
NO |
|
Cost |
Low-cost / Zero-cost structure |
|
Protection Provided |
Select a target range, such as: 0-20 buffer, 5-30 buffer, & more. |
|
Upside Participation |
Upside Cap |
|
Risk |
Market risk beyond buffer |
Client seeking to create cash flows from a concentrated position that does not pay dividends, or to cover taxes from dividend-paying holding.
|
Objective |
Seeks enhanced income and some capital appreciation, while lowering volatility. |
|
Client Risk/ Reward Profile |
Income focused / improvement on distribution yield |
|
Ideal Market Environment |
Range-bound, bull market |
|
Underlying position |
Long Stock |
|
Option Structure |
Covered Call: Short calls typically target full notional value, 4-10% OTM, 2-4 months expiry. |
|
Income Program |
YES |
|
Cost |
Credit received |
|
Protection Provided |
Premium collected acts to dampen volatility |
|
Upside Participation |
Upside Cap |
|
Risk |
Loss of upside participation/stock assignment |
Client needs to liquidate a portion or all of a concentrated position, but unsure if the stock will reach target sale price within the desired time frame.
|
Objective |
Seeks enhanced income to achieve liquidation price target sooner. |
|
Client Risk/ Reward Profile |
Focused on liquidating position at a specific price target |
|
Ideal Market Environment |
Range-bound, bull market |
|
Underlying position |
Long Stock |
|
Option Structure |
Long Call + Short 2x Calls |
|
Income Program |
NO |
|
Cost |
Credit received |
|
Protection Provided |
No Hedge |
|
Upside Participation |
Upside Cap |
|
Risk |
Cost of Trade |
Client is exposed to major losses due to a significant short position in a stock that is not falling within the expiry.
|
Objective |
For short stock seller, seeks upside risk mitigation in a "buffer" zone, total gains capped, at a low a cost |
|
Client Risk/ Reward Profile |
Lower risk tolerance / focused on a defined outcome |
|
Ideal Market Environment |
Range-bound, bear market with potential for upside breakout |
|
Underlying position |
Short Stock |
|
Option Structure |
Upside Call Spread + Short Put |
|
Income Program |
NO |
|
Cost |
Even-Money / Zero-Cost Structure |
|
Protection Provided |
'-5% to -30% Buffer, Then Open |
|
Upside Participation |
Upside Cap |
|
Risk |
Market risk beyond buffer |
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