Fence (finance) (original) (raw)

Fence (also known as a Dutch Rudder) is an investment strategy that uses options to limit the range of possible returns on a financial instrument. A fence consists of the following elements: * long position in a financial instrument (e.g. a share, index or currency) * long put (normally with a strike price close to or at the current spot price of the financial instrument) * short put (with a strike price lower than the bought put - e.g. 80% of the current spot price) * short call (with a strike price higher than the current spot price).