Fence


Fence

A risk-mitigating investment strategy that utilizes options to limit the possible range of returns. To employ a fence, the investor purchases a security (a long position), a long put with a strike price near the spot price of the security, a short put with a strike price lower than the spot price of the security and a short call with a strike price higher than the spot price of the security. The options are typically set to expire at the same time. The option premiums should balance each other, having a net derivative investment of zero while the underlying security is bought.

A fence is used to limit the movement of an option investment return, just as a fence used on a farm is designed to keep animals from wandering outside of a property. An investor may employ a fence if the underlying security has increased in value, since employing a fence will reduce the risk of loss. When the options employed expire, the strategy is designed to keep the value of the investment between the strike prices of the short call and long put.


Investment dictionary. . 2012.

Synonyms:

Look at other dictionaries:

  • Fence — (f[e^]ns), n. [Abbrev. from defence.] 1. That which fends off attack or danger; a defense; a protection; a cover; security; shield. [1913 Webster] Let us be backed with God and with the seas, Which he hath given for fence impregnable. Shak. [1913 …   The Collaborative International Dictionary of English

  • fence — 1 n 1: a barrier intended to prevent escape or intrusion or to mark a boundary 2 a: a receiver of stolen goods b: a place where stolen goods are bought fence 2 vt fenced, fenc·ing 1 a: to enclose with a fence …   Law dictionary

  • Fence — Fence, v. t. [imp. & p. p. {Fenced} (f[e^]nst); p. pr. & vb. n. {Fencing} (f[e^]n s[i^]ng).] 1. To fend off danger from; to give security to; to protect; to guard. [1913 Webster] To fence my ear against thy sorceries. Milton. [1913 Webster] 2. To …   The Collaborative International Dictionary of English

  • Fence — Fence, v. i. 1. To make a defense; to guard one s self of anything, as against an attack; to give protection or security, as by a fence. [1913 Webster] Vice is the more stubborn as well as the more dangerous evil, and therefore, in the first… …   The Collaborative International Dictionary of English

  • fence — fence; fence·less; fence·row; fence·less·ness; of·fence; …   English syllables

  • fence — [fens] n. [ME fens, aphetic for defens, DEFENSE] 1. Obs. a protection; defense 2. a barrier, as of wooden or metal posts, rails, wire mesh, etc., used as a boundary or means of protection or confinement 3. the art of self defense with foil, saber …   English World dictionary

  • fence — ► NOUN 1) a barrier enclosing an area, typically consisting of posts connected by wire, wood, etc. 2) a large upright obstacle in steeplechasing, showjumping, or cross country. 3) informal a dealer in stolen goods. 4) a guard or guide on a plane… …   English terms dictionary

  • fence — [n] barrier used to enclose a piece of land backstop, balustrade, bar, barbed wire, barricade, block, boards, chains, Cyclone, defense, dike, guard, hedge, net, paling, palisade, pickets, posts, rail, railing, rampart, roadblock, shield, stakes,… …   New thesaurus

  • fence — ● fence nom masculin (anglais fence) Obstacle de steeple chase constitué par une barrière de planches …   Encyclopédie Universelle

  • fence — [fens] verb [intransitive] informal LAW to buy and sell stolen goods: • The police suspect he has been fencing electronic equipment …   Financial and business terms

  • fence in — index circumscribe (surround by boundary), confine, contain (enclose), enclose, encompass (surround), envelop …   Law dictionary


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