Capping

AAA

DEFINITION of 'Capping'

1. The practice of selling large amounts of a commodity or security close to the options expiry date in order to prevent a rise in market price.

2. An attempt to keep a stock's price low or move its price lower by putting selling pressure on it.

INVESTOPEDIA EXPLAINS 'Capping'

1. The investor who might practice capping is a call option writer. If practicing capping, he or she is trying to avoid having to transfer the underlying security or commodity to the option holder. The goal is to have the option expire worthless so that the premium initially received by the writer is protected.

2. This is a violation of NASD rules.

RELATED TERMS
  1. Back Months

    The available futures contracts for a particular commodity that ...
  2. Congestion

    1. A market situation whereby the demand of contract holders ...
  3. Corner

    1. The act of securing enough controlling interest or ownership ...
  4. Cost Of Tender

    The total charges associated with the delivery and certification ...
  5. Current Delivery

    A type of futures contract that requires the delivery of the ...
  6. National Association Of Securities ...

    The NASD was a self-regulatory organization of the securities ...
Related Articles
  1. Options & Futures

    Options Basics Tutorial

  2. Options & Futures

    Going Long On Calls

  3. First time stock investors may ask, is there any way to buy insurance on stocks to prevent losses?
    Options & Futures

    Stock Safety: Top 3 Ways to Limit Your ...

  4. Options & Futures

    Applying Binary Options To Equity Markets

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  3. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  4. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  5. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center