In his book 'Option Trading: The Hidden Reality', Charles Cottle seems to mean that a fence(collar) is same as a bull spread. Why is it?
I think the semantics are confusing, but I don't believe Cottle is suggesting that position is a fence or collar. It's an underlying long coupled with a bearish fence. He is suggesting that, synthetically, the long underlying plus short call is a bull spread because it's equivalent to long two atm calls plus short one otm call (ratio'd bull spread). Likewise, the long underlying is akin to short two atm puts and long one otm put (ratio'd bull spread). To answer your question, no, a fence is not the same as a bull spread. A "fence" in typical parlance can be bearish if one is long a put, short a call, with no position in the underlying. It's only bullish if long call, short put, and no position in underlying.
I think I need to see the context in which this quote is from...but in anycase A bear spread is part of a collar/fence.... your long the inventory/stock, you will buy the bear spread... long a put, and short a different higher strike call is a bear spread called a short risk reversal... In this case I think cottle is talkign about the bear spread part of the collar trade... "watch" the bull spread part of the trade is what he is saying.. Some people sell books about this "costless collar" idea.. there is no such thing as costless.. for one skew will put the same delta call cheaper then the same delta put because of the positive put skew in equities.. alot of commodities are the opposite.. I vaguely remember someone saying something about trading skew with fences.. but i think its a hard factor to isolate P/L from.. idk..
I don't think the reference to a no-cost collar comes with the assumption that both OTM options have equal delta. As you point out, the put is almost always farther out. As for the original question, isn't Cottle just saying that a collared long stock has the same P/L as a bull spread with same strikes & expiration as the options in the collar?
your right.. A bull call debit spread has the same pay off as a short risk reversal along with 100 shares