One hedge for a position you partly can’t sell yet — does the cost line actually work?
Why a single hedge fails
Why does a single hedge fail a staged position?
Because your concentration is not one block; it is rungs with different exit dates. A single overlay prices the whole stack as if it were liquid today, when most of it is restricted, vesting, or inside a lock-up.
The result is mis-sizing both ways. You over-insure shares you can already sell and under-insure the tranche you cannot touch — the exact tranche that reprices while your hands are tied.
The cost of one block
What does treating it as one block cost?
It costs forced selling at the worst moment. To fund a flat hedge you either liquidate liquid shares early or let premium drag compound across the years no storm comes — and concentrated holders carry 60–90% of net worth in one ticker, so the drag is large.
The deeper cost is timing risk. A restricted tranche cannot be exited when correlation snaps to 1; it is short one event with no liquidity, while the hedge meant to cover it was sized against the wrong rung. This is the structural case for systematic tail-risk protection rather than a static overlay.
Sized to the schedule
What does a structure sized to the schedule give you?
A hedge that funds itself rung by rung. Each tranche carries cover scaled to its own size and unlock date, paid from yield or partial liquidity already available at that tier — no selling the position underneath to insure it. Engineered resilience here is the ladder, not a single bet — assembled from the same tail-risk option structures priced per rung.
How it works
How it works
The Wealth Ladder
A tiered protection structure: liquid shares, restricted/vesting equity, and locked tranches each become a rung. Every rung gets cover sized to its notional and time-to-liquidity, funded from cash flow or liquidity already at that tier — so no rung forces a sale of the rung below it. Sizing is the structure: an over-allocated hedge reverses its own benefit, since the insurance leg averages an arithmetic loss and only the net geometric effect can be positive (Spitznagel, M. (2021), Safe Haven, Wiley). The same arithmetic governs the Spitznagel cost-of-insurance method applied to the whole structure.
Spec line
Model: per-tranche cover keyed to unlock date and beta · Data: your vesting and lock-up schedule · Coverage: rung-by-rung, no cross-funding · Stated failure rate: 4.2% false-comfort — runs that understate a tranche’s realized tail, concentrated where two rungs unlock into the same shock.
Objection
“Isn’t this just my existing hedge, split up?”
No — splitting a mis-sized hedge keeps it mis-sized. The ladder re-prices each tranche against its own exit date and funding source, then checks no rung is large enough to drag net geometric return negative. A single overlay cannot run that test per rung, because it never sees the rungs. Where the schedule is complex, the advisory mandate governs the per-rung sizing, and the portfolio diagnostic reads your unlock schedule directly.
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Frequently asked questions
What is a wealth ladder?
A wealth ladder is a tiered protection structure that splits a concentrated position into rungs by time-to-liquidity — liquid shares, restricted or vesting equity, and locked tranches — and sizes a separate hedge for each. It treats the holding as a schedule of exit dates, not one block priced as if liquid today.
How does a wealth ladder handle single-stock concentration?
It sizes cover per rung against that rung’s own notional and beta, so the restricted tranche carrying the real tail is insured without over-insuring shares you can already sell. Concentrated holders typically carry 60–90% of net worth in one ticker, so mis-sizing a flat hedge across that block is the dominant cost the ladder removes.
How do liquidity tiers work in the structure?
Each tier funds its own hedge from cash flow or partial liquidity already available at that tier, so no rung forces a sale of the rung beneath it. Liquid shares fund their cover from current liquidity; locked tranches draw on yield, never on selling the position they protect.
How does a wealth ladder fit with tail-risk hedging?
The ladder is the framework; the hedges on each rung are tail-risk option structures sized by the same cost-of-insurance arithmetic, where an over-allocated leg averages an arithmetic loss and only the net geometric effect can be positive. The ladder’s job is to keep every rung small enough that net geometric return stays positive — the per-rung false-comfort failure rate is stated at 4.2%.
Who is a wealth ladder for?
It is for holders of a single concentrated position — founder stock, vested equity, restricted shares — who cannot exit the whole block today and need cover that does not force early selling. If the position is fully liquid, a single overlay suffices and the ladder adds no benefit.