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

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

    Going Long On Calls

    Learn how to buy calls and then sell or exercise them to earn a profit.
  3. Options & Futures

    What are the differences between divergence and convergence?

    Find out what technical analysts mean when they talk about a market experiencing divergence or convergence and how they affect trading strategies.
  4. Options & Futures

    What are the most common momentum oscillators used in options trading?

    Read about some of the most common technical momentum oscillators that options traders use, and learn why momentum is a critical concept for options trading.
  5. Options & Futures

    Futures Quotes Explained The "Easy" Way

    If there’s a security whose price fluctuates, there can theoretically be a futures marketplace for it.
  6. Options & Futures

    How are Bollinger Bands® used in options trading?

    Use Bollinger Bands to identify volatility changes and place options trades at the right time; profit in bull or bear markets using these strategies.
  7. Options & Futures

    Why is the Accumulative Swing Index helpful for traders and/or investors?

    Find out why J. Welles Wilder believed that the accumulative swing index could be used in the futures markets to indicate long-term trends.
  8. Options & Futures

    Stock Futures vs Stock Options

    A full analysis of when is it better to trade stock futures vs when is it better to trade options on a particular stock. A quick overview of how each of them works and why would a trader, investor, ...
  9. Options & Futures

    The Potential Of Low-Priced Options

    The benefits of trading low-priced options, and learning how to pinpoint them, can be a very profitable strategy for an options trader.
  10. 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 Losses

    First time stock investors may ask, is there any way to buy insurance on stocks to prevent losses?

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center