Concentrated Stock Positions: Five Ways to Reduce Risk Without Selling All at Once

Figures reflect rules in effect as of October 2026.

If one stock is a large part of your net worth and selling it would mean a large capital gains tax, there are five ways to reduce the risk without selling it all at once: exchange funds, collars, prepaid variable forwards, donor-advised fund gifts and charitable remainder trusts. Each trades away cost, flexibility or upside for deferring the tax.

A concentrated position usually arrives honestly: founder stock, years of RSUs, an IPO, an inheritance. The problem is that your financial life then moves with one company’s fortunes, and the obvious fix, selling, can hand a large share of the gain to federal and California tax.

Selling gradually is still the simplest answer for most people, and it is the baseline the strategies below should be measured against. They are worth knowing when the gain is large, the tax is high, or you want protection before you are ready to sell.

Why one stock is a risk worth managing

A single company can fall for reasons that have nothing to do with the market: a lost contract, a failed product, a regulatory change, a leadership decision. A diversified portfolio spreads those risks across many companies. A concentrated one keeps all of them, often alongside your salary and unvested awards at the same employer.

For newly public companies the question comes with dates attached. My post on SpaceX equity after the IPO covers a lock-up released in stages. Lock-up agreements often restrict hedging as well as selling, so check yours before using any strategy below.

1. Exchange funds: diversify without selling

An exchange fund is a partnership that pools appreciated stock from many investors. You contribute your shares and receive a share of the pool, and the contribution is generally not taxed. After a holding period of seven years, you can withdraw a share of the pooled securities, which carry your original cost basis.¹

The trade-offs are real. To keep the deferral, the fund must hold at least 20% of its assets in non-securities, typically real estate, often bought with borrowed money. The fund rarely sells, so its portfolio is largely set by what investors contribute, and popular stocks can have waiting lists. Leaving early can mean receiving only your own shares back.¹ Minimums and investor qualifications vary by fund.

2. Equity collars: a floor and a ceiling

A collar pairs a purchased put option, which sets a floor on your losses, with a sold call option, which pays for the put and caps your gain. You keep the shares and the dividends, and a collar is usually not a sale.

The tax risk is a constructive sale. If the floor and ceiling are so close that you have given up substantially all of the risk and reward of owning the shares, the IRS can treat the position as sold.² Collars are usually designed with a wide band between the strikes to reduce that risk, but there is no bright-line rule, so the design is work for your tax adviser and the dealer together.

3. Prepaid variable forwards: cash now, sale later

In a prepaid variable forward, a dealer pays you cash today, a percentage of the stock’s value, and you agree to deliver a variable number of shares at a future date. The number depends on the share price then, which gives you a floor and a capped upside, much like a collar.

The IRS has ruled that a contract of this kind, where the number of shares to be delivered varies significantly with the price, is neither a current sale nor a constructive sale, provided you keep the right to deliver cash or other shares instead of the pledged shares and are not economically compelled to deliver them. The tax then waits until delivery.³ The terms matter: the advance, the floor and the cap depend on the stock, the dealer and the term, and the contract carries counterparty risk. It needs a tax adviser’s review before signing.

4. Donor-advised fund gifts

If you intend to give, appreciated stock is often the best asset to give. A gift of shares held more than a year to a public charity or a donor-advised fund generally lets you deduct the market value if you itemize, up to 30% of adjusted gross income, and neither you nor the charity pays tax on the gain.⁴ From 2026, itemized charitable gifts count only above 0.5% of AGI, and for the top bracket each deducted dollar saves at most 35 cents.⁵

A donor-advised fund lets you make the gift, and take the deduction, in the year that suits your taxes, then recommend grants to charities over later years. It reduces the position by exactly the amount you give.

5. Charitable remainder trusts: income now, a gift later

A charitable remainder trust goes further. You contribute shares, the trust can sell them, and the tax on the gain is deferred: it reaches you gradually, as part of the payments the trust makes to you. Those payments run for your life or a term of up to 20 years, after which the remainder goes to charity. You receive a partial deduction, for the present value of the charity’s share, when the trust is funded.⁶ It suits someone who wants both income and an eventual gift.

What doesn’t do the job

Three tools are often offered for concentrated positions and are worth understanding before you hear the pitch.

• Structured notes. A structured note is a bank’s debt combined with an option. It protects only the money you put into the note; it does not hedge the shares you already own. It is an unsecured obligation of the issuer, is often hard to sell before maturity, and is typically priced above its estimated value.⁷ At most it is one place to put proceeds after a sale.
• A swap of your full position. A total return swap that pays away all of your stock’s gains and covers its losses is a constructive sale, and the gain is taxed now.² Partial or capped swaps need tax counsel to stay outside that rule.
• Section 351 ETF exchanges. These let investors contribute a portfolio to a newly formed ETF without tax, but only a portfolio that is already diversified: no holding above 25% of what you contribute and no five holdings above 50%. A single concentrated stock fails that test.⁸ The IRS has also narrowed the route. Under Revenue Ruling 2026-20, when the new ETF soon uses the contributed securities, under the same plan, to redeem shares issued to an authorized participant, the investor is treated as making a taxable exchange of those securities.⁹ Notice 2026-62 asks for comments, due October 28, 2026.¹⁰

How to choose

Start with the plainest question: how much of the position do you want to keep for its own sake? The rest can usually be sold over several tax years, which spreads the gain and keeps the decision simple. The strategies above earn their cost when the gain is very large, the stock is volatile, or you want protection now and a sale later.

Each one asks you to give up something: upside, liquidity, flexibility or money in fees. None is right for everyone, and none replaces a written plan for how much to hold. This is a starting point, not a complete answer. The tax side of a sale, including California’s rate on gains, is in my RSU withholding post and the year-end tax and giving review. These pieces fit within how I plan equity compensation and concentrated stock. If the shares are founder or early-employee stock, the QSBS rollover is the other thing to check before a sale.

The Bottom Line

A concentrated stock position can be reduced without selling everything at once. Exchange funds, collars, prepaid forwards, donor-advised fund gifts and charitable remainder trusts each defer or avoid part of the tax in exchange for cost, complexity or capped upside. Selling over time remains the baseline. Decide first how much you want to keep, then choose the least complicated tool that gets you there.

If you hold a concentrated stock position and want to talk through which of these approaches could fit, book a complimentary 15-minute call.