Capped Option

Filed Under » , ,
Dictionary Says

Definition of 'Capped Option'

A security that features a maximum limit on the holder's profit potential. A capped option is automatically exercised if and/or when the underlying asset reaches a certain price. Obviously, a put option would be exercised if the price on the underlying asset falls below the option cap price, while a call option would be exercised if the underlying asset price rises above the option cap price, thereby locking in the maximum profit possible from the option exercise.
Investopedia Says

Investopedia explains 'Capped Option'

While capped options protect the writer from losing more than a predetermined, fixed amount and, hence, would seem to be disadvantageous to buyers, they are generally easier to exercise and often don't require the type of movement that one would need to see in a standard option to realize decent profits. Some examples of capped options include options on the S&P 100 and S&P 500 indices that were created by the Chicago Board of Options Exchange (CBOE) in 1991.

Articles Of Interest

  1.

    Options Basics Tutorial

    Discover the world of options, from primary concepts to how options work and why you might use them.

  2. 6 Asset Allocation Strategies That Work

    Your portfolio's asset mix is a key factor in whether it's profitable. Find out how to get this delicate balance right.

  3. American Vs. European Options

    These two options have many similar characteristics, but it's the differences that are important.

  4. Pay Attention To The Proxy Statement

    Don't overlook this overview of a company's well-being.

  5. How Risk Free Is The Risk-Free Rate Of Return?

    This rate is rarely questioned - unless the economy falls into disarray.

  6. An Introduction To Gamma-Delta Neutral Option Spreads

    Find the middle ground between conservative and high-risk option strategies.

  7. Shopping For A Financial Advisor

    Finding your perfect advisor is as simple as shopping for a car. Read on to learn more.

  8. Nobel Winners Are Economic Prizes

    Before you try to profit from their theories, you should learn about the creators themselves.

  9. The Options Premium

    An options premium is the amount of money that investors pay for a call or put option. The two components that affect options pricing are the intrinsic value and time value. Matthew is interested ...

  10. Broker Or Trader: Which Career Is Right For You?

    A day in the life of a broker or trader is an exciting and varied one. Find out how to decide between these two financial professions.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...

  2. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.

  3. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.

  4. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.

  5. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...

  6. Bailment

    The contractual transfer of possession of assets or property for a specific objective.
Trading Center