What is a fence strategy?

A fence is an options strategy that establishes a range around a security or commodity using three options. It protects against significant downside losses but sacrifices some of the underlying asset's upside potential.

What is a fence option strategy?

A fence is a defensive options strategy involving three different options that an investor deploys to protect an owned holding from a price decline, while also sacrificing potential profits. A fence is similar to options strategies known as risk-reversals and collars that involve two, not three options.

How do investors construct a fence?

An investor holding a long position in the underlying asset constructs a fence by selling a call option with a strike price above the current asset price, buying a put with a strike price at or just below the current asset price, and selling a put with a strike below the first put's strike.