Generate Income and Protect Underlying Stock
Single stock risk is often discussed at ZEGA. We understand why clients hold single stocks due to avoiding significant tax consequences, maintaining a low cost basis for the stock itself, or it could even be an emotional reason. Regardless of the situation, there’s a good chance ZEGA can help limit the inherent risk a large single stock position carries.
ZEGA’s concentrated position hedging program reviews each individual position’s optionality and cost of hedging to determine the most beneficial way to build floors in clients’ wealth. We utilize individual stock options and/or index options to create protective hedges for your clients. ZEGA also scans the volatility surface to look for opportunities to reduce the cost of hedging by selling premium around their holdings. ZEGA may also use their overlay strategies to create additional income.
- Construct hedges using options on underlying stock
- Reinvest hedging profits into other investments to increase diversification across entire investable portfolio
- Laddered positions where possible with at least 2 expiration dates to spread out protection
- Maintain dividend income from stock holding
- Overlay tactics that utilize the concentrated stock as collateral for additional income
The ZEGA portfolio hedging program is recommended as a protective component to complement core equity holdings. Clients should have moderate risk tolerance for exposure to this strategy.
HiPOS Overlay Provides Potential for Additional Income
ZEGA can also sell option premium using ZEGA’s HiPOS Conservative strategy on a portion of the portfolio’s liquidation value as appropriate. The buying power released by the concentrated position permits us to sell premium without incurring debit balance or margin interest payments. This potential additional income can help pay for the hedges.