RIA Worked Example: One Concentrated Stock Client

Written by the BallastX editorial team. Educational content for RIA professionals. Not investment, tax, or legal advice.

The example client

Call the client Alex. Alex is an equity-comp employee. The taxable brokerage account holds one large position in the employer stock, plus a mix of funds.

• Employer stock: about $2,000,000 market value (example).
• Cost basis: much lower than market value, so a sale would create a large capital-gains bill (example).
• Rest of the liquid portfolio: about $500,000 in diversified funds (example).
• Alex will not sell this quarter. Reasons can be tax, belief in the company, or trading windows.

These figures are fixed illustrations, not a real client case, market quote or forecast.

Step 1. Name the risk in plain dollars

Before any hedge talk, put the downside in dollars. A free BallastX stress test or diagnostic can help with the math. The advisor still owns the story.

Assume the fictional stock falls 37%. A $2,000,000 stock position would lose $740,000 before any hedge. This is an assumed stock-price change, without a beta estimate or historical replay. Premiums, fees and taxes are excluded from that unhedged figure. The interactive case below compares matched hypothetical options.

Step 2. Put five paths on one page

Keep the menu short and honest:

1. Do nothing. Retains stock upside and downside. Record the reason for holding and the risks considered.
2. Sell and diversify. Often the cleanest risk answer. Triggers tax now. May be blocked by lockups or windows.
3. Exchange fund. May diversify with conditional tax deferral. Eligibility, fees, minimums and redemption terms vary; review the specific offering documents.
4. Variable prepaid forward (VPF). Can raise cash and hedge. More bank paperwork. Constructive-sale and complexity risk need counsel.
5. Governed options hedge (put or collar). Shares stay held. Put premium is the insurance cost. A collar can cut that cost by capping upside. Client still executes at their brokerage.

BallastX Learn already covers deeper comparisons. The point of this page is the advisor workflow, not a product pitch.

Step 3. Verify the assumptions before a professional decision

The linked sample fixes 20,000 fictional shares at $100, 200 standard 100-share contracts, a one-year $90 put costing $120,000, and a $120 call receiving $80,000 for a $40,000 net-debit collar. At $63 expiry the unhedged loss is $740,000, the put loss is $320,000 and the collar loss is $240,000, including signed premiums. Fees, taxes, dividends and other assets are excluded. These are hypothetical matched-stock illustrations. A proxy hedge cannot guarantee these stock outcomes.

Check actual contracts, deliverables, expiry, quote timestamps, liquidity, residual shares and basis risk. Holding, selling or deferring remain valid decisions. The professional must assess capacity-specific obligations and complete tax history; a record does not certify compliance.

Suppose Alex and the advisor lean toward keeping the shares and buying protection for the next year. A draft might say, in plain words:

• Structure under review: protective put (or collar) sized to the $2,000,000 block.
• Goal: limit a deep decline while Alex keeps the shares.
• Cost: show an illustrative premium range in dollars and as a percent of the position. Use live quotes before anyone acts. Do not treat a blog range as a fillable order.
• Trade-offs: puts cost money if the stock rises. Collars can reduce that cost by selling a call and capping upside.

BallastX can draft that recommendation and seal the inputs before review. The advisor must still change it, reject it, or approve it. Nothing executes automatically.

Step 4. Advisor approval, then client execution

A clean non-discretionary loop looks like this:

1. Advisor reviews the draft, the alternatives, and the dollar cost.
2. Advisor approves, edits, or rejects. The decision is recorded.
3. Client places the trade at their own brokerage. BallastX does not take custody and does not place the trade.
4. Firm notes what was executed versus what was approved, including later rolls.

Step 5. What the CCO should be able to export

For an exam or an internal review, the file should answer:

• What concentration facts did we use?
• Which alternatives did we show?
• What cost and upside trade-offs did we disclose?
• Who approved the recommendation, and when?
• What did the client actually execute?

BallastX seals each recommendation to a hash-chained ledger before advisor review so the record is hard to rewrite quietly. Export that ledger when the CCO asks. Do not treat a chat log as the exam file.

What this example is not

• Not a trade ticket.
• Not tax advice. Constructive-sale and holding-period rules need a tax professional.
• Not a claim that any hedge removes all loss.
• Not a promise that BallastX is approved for your firm. Design-partner access is an application with CCO co-sign.

Next free steps on BallastX

Review the interactive synthetic case and inspect its learning record. Explore the stress test or concentration diagnostic with example holdings. Read the deeper guides on the Learn hub. Apply for design-partner access only when the firm is ready for a CCO co-sign.