Fence
Similar to a collar but adding a second sold put to generate extra premium and lower the net cost of protection, at the expense of accepting a worse floor below the lower put strike
Risk Profile at a Glance
How to Construct the Fence
- 1.Own 100 shares
- 2.Buy 1 out-of-the-money put
- 3.Sell 1 out-of-the-money call
- 4.Sell 1 out-of-the-money put at a lower strike to further reduce cost
Understanding the Fence
The fence is an extension of the collar strategy. Instead of simply buying a put and selling a call, the fence also sells a put at a lower strike to generate additional income that reduces the net cost of protection. This three-legged structure creates a more complex risk profile: between the two put strikes, you benefit from the extra premium. Below the lower put strike, you lose protection and your losses increase again.
The fence is most useful when you want cheap collar-style protection and are comfortable with the conditional downside below the lowest put. It is less commonly used than the basic collar but can be tailored for specific risk budgets. As with all covered strategies, the underlying position must be owned in round lots. Advanced traders use fences to fine-tune the tradeoff between protection cost and the floor level on their stock holdings..
When to Use It — EdgeOS Signal Integration
- ✓Use when no active bull or bear EdgeOS count — the stock is in chop / reset mode
- ✓Extension score near zero — stock is pinned at the ATR mid-level, no directional bias
- ✓Market breadth is neutral (SCTR breadth 45–55%) — range-bound conditions expected
Compare with Similar Strategies
Other Covered & Protected Strategies
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Frequently Asked Questions
What is the Fence options strategy?
The fence is an extension of the collar strategy. Instead of simply buying a put and selling a call, the fence also sells a put at a lower strike to generate additional income that reduces the net cost of protection.
When should I use the Fence?
Similar to a collar but adding a second sold put to generate extra premium and lower the net cost of protection, at the expense of accepting a worse floor below the lower put strike
What is the maximum loss on the Fence?
The maximum loss is fully defined at entry: the net debit paid (for debit strategies) or the spread width minus the credit received (for credit spreads). You can never lose more than this amount.
How does the Fence compare to similar strategies?
The Fence is a neutral complex strategy. Compared to the Collar (neutral, complex), the Fence has limited max risk and limited max reward. Your choice depends on your directional bias, IV environment, and risk tolerance. The TraderValue strategy comparison tool lets you see the exact payoff differences side by side.