Covered Calls

The majority of our clients work in tech and receive stock as part of their compensation. This means that we spend a lot of time helping clients get out of “paralysis by analysis” mode and into “strategize and action” mode. One common problem for tech employees who change employers every few years is figuring out what to do with stock from their past companies. This is a perfect use case for our Covered Calls service. We create customized covered call strategies that aim to diversify your concentrated stock positions while also generating income.

Let’s get diversified!

A covered call is an options contract where the buyer acquires the right to buy a specific number of shares from the seller at a specific price by a predetermined date. Covered calls allows the investor to earn income through the premium(s) received from writing the option. We leverage covered calls as a diversification strategy, helping our clients to reduce concentrated positions and diversify their investments over time.

If you’re unfamiliar with covered calls, we recommend watching this short video and/or reading this article.

Eligibility Requirements

  • Minimum investment amount of $100,000 and at least 300 shares,

  • The total number of shares must be a multiple of 100 to be eligible for the Covered Calls service (contracts can only written in multiples of 100 shares).

  • The ability for shares to remain in the strategy for a minimum of 90 days. 

  • Shares must be transferred to Charles Schwab. We do not manage assets outside of Schwab. Similarly, do not transfer over any shares that you do not wish to be part of a covered call strategy.

  • Maintain 0.5% of the total account balance as cash to cover management fees. This may result in the first set of premiums being withheld from reinvestment.

  • The company must pass DiversiFi’s viability analysis to ensure:

    • Options market liquidity,

    • The company has a favorable financial condition and trajectory, and

    • The stock is reasonably priced in the market

Client virtual meeting

Covered Calls Might…

  • Be a great fit for you if:

    • You are no longer employed by a company for which you have more than $100k of vested stock.

    • You have a large stock position that you would like to see reduced and diversified into other investments over time.

    • You are unsure about the stock and are worried about it becoming a dead asset.

    • You do not intend to hold these shares long-term.

  • Not be the right fit for you if:

    • You do not have more than $100k of vested stock with a past employer.

    • You want to hold your shares long-term and don’t want to risk them being sold.


    • The stock does not have a liquid options market and/or options premiums are too low.

    • You’d rather sell your shares in one transaction.

Your Advisor is responsible for helping you determine if Covered Calls is a good fit. We perform a detailed viability analysis to leverage data in our recommendation.

What to Expect

  • account opening icon

    Open Accounts

    Our team will provide you with the necessary forms to open your account at Charles Shwab. If you’re already a client of DiversiFi’s Wealth Management Service, you will use your existing account.

  • transfer assets icon

    Transfer Assets

    Once your account is opened, we will work with your bank to transfer over your shares. The quantity and dollar amount of shares we transfer is something that you will discuss in detail with your advisor.

  • Start Investing

    Our Wealth Team will write the covered call contracts for your specified amount of shares, utilizing the strategy or portfolio you indicated. Most contracts last 45-90 days, and you will receive your premiums up-front.

Our Covered Call Strategies

When enrolling in our Covered Call service, you can choose one of three strategies - Conservative, Moderate, or Aggressive. These strategies have different weighted call probabilities, meaning that they each represent different speeds of diversification. Our strategies are a starting point and can be customized to your needs with the help of your Advisor.

Proceeds from any premiums received and/or shares sold are reinvested within the Wealth Managment portfolio(s) that best fit your needs.

DiversiFi may close options contracts early if the value of the options has dropped considerably (i.e., at a profit) and there is still significant time to maturity. This allows us to sell new contracts faster and generate more premiums for our clients.

Covered Call Portfolio - moderate image

Pricing

Our Covered Calls service is a subset of our Wealth Management Offering and utilizes the same pricing model. All assets under management, whether managed in a Wealth Management portfolio, or part of Covered Calls, are billed using the rates in the table below. In addition to DiversiFi’s monthly Wealth Management fee, there is a brokerage transaction fee of $0.65 per options contract (1 options contract = 100 shares).


If you are an existing client already using our Wealth Management service, adding additional funds through the Covered Call service could positively change your pricing tier, lowering the fees across all your investments.

Assets Under Management Pricing Table with annual fee rates

These are not costs associated with opening or closing an account at Charles Schwab. Transfer fees may be associated with the delivering firm during the transfer of shares process.