RSUs and Post-IPO Wealth: Managing Single-Stock Concentration
Key takeaways
- RSU vesting and IPO lockup expirations concentrate wealth in one stock, usually with a low basis.
- Selling all at once realizes the full gain in one tax year — often at the top marginal rate.
- An option overlay can diversify gradually while income helps fund the tax.
- For unexercised employee options, overlays must be checked against plan terms, trading windows, and lockups.
- Coordinate early with the plan administrator, company counsel, and a tax professional.
For many technology and startup employees, the same event that creates wealth also creates risk: RSUs vest or an IPO lockup expires, and suddenly most of a household’s net worth sits in a single stock with a large embedded gain. The instinct to diversify collides with the tax cost of selling.
Why is post-IPO concentration so common?
Equity compensation is designed to concentrate. Years of grants vest into one ticker; an IPO turns illiquid shares into a tradable position all at once. The basis is often near zero, so almost the entire value is taxable gain. Selling everything in the first eligible window can push the entire gain into one tax year at the highest marginal rate.
How can an overlay help with vested shares?
For shares already held, an option overlay applies the same playbook as any concentrated position: write covered calls for income, optionally add a protective put for a floor, and sell down on a glidepath while premium income helps fund the tax. The employee diversifies over time instead of in a single taxable event, keeping market exposure on the underlying along the way.
What about unexercised employee options?
The approach can extend further than many realize. Through certain structured arrangements, a holder of deep in-the-money employee options can use OTC overlay strategies to hedge the embedded gain and manage the tax timing of exercise and sale — without triggering constructive-sale rules or violating lockup or trading-window restrictions. This is more complex than an overlay on already-vested shares and demands careful coordination.
Coordinate before you act
Any overlay involving employee equity must be reviewed against the equity plan terms, company trading policies, and lockup agreements. Loop in the plan administrator, company counsel, and a tax professional early — before putting on any position.
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This article is for educational and informational purposes only and is not investment, tax, or legal advice. Option strategies involve risk and are not suitable for all investors. Tax treatment of options is complex and depends on individual circumstances, holding periods, and applicable law; tax rates referenced reflect 2024–2025 federal and state estimates and are subject to change. Consult a qualified tax professional and investment advisor before acting. Yayati Asset Management is a Registered Investment Adviser. © Yayati Asset Management. VOLT™ is a trademark of Yayati.
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