A single stock that has grown into a large share of your wealth carries risk the market does not pay you for. Here is how staged selling, puts, collars and exchange funds work, what each costs, and why employer stock is a special case.
There are four broad approaches, and many investors combine them:
None of them is free. The right mix depends on the size of the position, its tax cost basis, any trading restrictions and how much upside you are willing to give up. This page explains how each works; a tax professional can check the consequences for your case. Portfolio‑wide hedges are covered in how to hedge a portfolio.
Because single companies can fail, or fall far further than the market, and a large position turns that into a portfolio problem. Exent replayed the largest US stocks through five selloffs:
| Crisis window | S&P 500 (SPY) fall | Median large stock | Stocks that fell more than SPY | Example of a large fall |
|---|---|---|---|---|
| Financial crisis, 2007–09 | −56.5% | −61.6% | 220 of 349 | Citigroup −97.9% |
| Trade-war selloff, 2018 | −20.2% | −22.4% | 258 of 428 | Nvidia −56.0% |
| COVID crash, 2020 | −34.1% | −40.8% | 301 of 440 | Royal Caribbean −79.9% |
| Inflation bear market, 2022 | −25.4% | −32.7% | 338 of 464 | Netflix −72.2% |
| Tariff selloff, 2025 | −19.0% | −20.1% | 251 of 475 | Marvell −55.5% |
Exent’s data as of Sep 30, 2026; deepest peak‑to‑trough fall inside each window. Illustrative: if one stock is 40% of a $1 million portfolio and falls 60%, that position alone cuts the portfolio by 24%, or $240,000, before anything else moves. When a single name counts as too much is covered in single‑stock concentration limits.
Yes, step by step. A staged plan sells a fixed amount on a schedule, so the decision is made once instead of every time the price moves. Spreading sales across tax years can also spread the capital gains. Selling the highest‑cost tax lots first and pairing gains with losses elsewhere (tax‑loss harvesting) are common refinements.
| Illustrative staged plan | Position at start of year | Sold | Remaining share of a $1M portfolio |
|---|---|---|---|
| Year 1 | 40% | 10 pts | 30% |
| Year 2 | 30% | 10 pts | 20% |
| Year 3 | 20% | 10 pts | 10% |
Illustrative only; ignores price changes. Company insiders often sell through pre‑arranged Rule 10b5‑1 plans. Under amendments the SEC adopted in December 2022, directors and officers face a cooling‑off period before the first trade, so these plans take time to start.
A put sets a minimum sale price until expiry; a collar adds a sold call that caps the upside and helps pay for the put. Options on single stocks are usually priced off higher expected volatility than index options, so protection on one name tends to cost more. Illustrative collar on a $400,000 position:
| Illustrative 1-year collar | Stock falls 40% | Stock flat | Stock rises 40% |
|---|---|---|---|
| Unhedged position | $240,000 | $400,000 | $560,000 |
| Put at −10%, call at +20%, net premium $0 | $360,000 | $400,000 | $480,000 |
Illustrative strikes and premiums, not quotes. The collar turned a $160,000 loss into $40,000 and a $160,000 gain into $80,000. Protection ends at expiry, and renewing it costs money again. One US equity option contract usually covers 100 shares. Tight hedges on appreciated stock can also trigger special tax rules. The OCC’s Characteristics and Risks of Standardized Options sets out the risks; costs are compared in the cost of hedging.
An exchange fund is a private partnership where many investors each contribute a concentrated stock and receive a share of the combined, more diversified pool. Under US tax rules the contribution is generally not treated as a sale, so the gain is deferred rather than realized.
The trade‑offs are real. Exchange funds typically require a multi‑year holding period to keep the tax deferral, charge fees, are usually open only to investors who meet high wealth thresholds, and the basket you end up with is the fund’s choice, not yours. The cost basis of the original shares carries over, so the tax is postponed, not removed.
Because the same company pays your salary and holds your savings. If it hits trouble, a falling share price can arrive at the same time as layoffs or frozen bonuses. Employer stock also builds up quietly through restricted stock units, option grants and employee purchase plans, and it often comes with trading windows and blackout periods that limit when you can sell or hedge.
Many employers restrict or ban hedging of company stock by employees, so the options above may not be available; the company’s insider‑trading policy is the place to check. A staged selling plan is often the most practical route. More on this situation in employer stock concentration.
| Approach | Main cost | Keeps upside? | Tax event now? | Complexity |
|---|---|---|---|---|
| Staged selling | Realized gains; risk stays until sold | On the shares kept | Yes, as you sell | Low |
| Protective put | Premium, renewed each expiry | Yes, minus premium | Usually not | Medium |
| Collar | Upside above the call strike | Up to the cap | Usually not; special rules can apply | Medium |
| Exchange fund | Fees, lockup, eligibility | In the pooled basket | Deferred | High |
| Do nothing | Full single-stock risk | Yes | No | None |
There is no single rule, but a single stock large enough that its fall would change your financial plan is concentrated. A useful test is the dollar loss if it halved.
Options such as puts and collars, and exchange funds, can reduce risk without an immediate sale, but each has costs and limits, and some tight hedges have tax consequences of their own.
It can set a floor and a cap, but many employers restrict hedging of company stock by employees. Check the company’s insider-trading policy first.
Yes. In Exent’s data, Nvidia fell 56.0% in the 2018 selloff and Netflix 72.2% in 2022, far more than the S&P 500.
Selling in stages on a fixed schedule and reinvesting in a broad fund is the simplest. It removes the risk gradually but realizes capital gains along the way.
Upload a screenshot of your holdings and get concentration, overlap, crash exposure and a risk-matched benchmark in about a minute.
Educational content, not investment advice. Examples are illustrative; past performance does not guarantee future results.