Locally-Capped Contract


DEFINITION of 'Locally-Capped Contract '

A type of embedded option found in structured investment products, that limits upside potential of the product, for specific periods over its life.

BREAKING DOWN 'Locally-Capped Contract '

In Principal Protected Notes, an investor receives a guarantee providing downside protection on the investment. A cost of this downside protection is that the investor will not participate in the full upside potential of the underlying investment. The underlying investment or reference portfolio can be capped locally or globally. As an example if the limit is a maximum return of 10% per quarter, no matter how well the underlying investments did, then that would be considered a locally-capped contract.

  1. Principal-Protected Note - PPN

    A fixed-income security that guarantees a minimum return equal ...
  2. Structured Investment Vehicle - ...

    A pool of investment assets that attempts to profit from credit ...
  3. Embedded Option

    A provision in a security that is an inseparable part of the ...
  4. Structured Investment Products ...

    A type of investment specifically designed to meet an investor's ...
  5. Credit Derivative

    Privately held negotiable bilateral contracts that allow users ...
  6. Put-Call Parity

    A principle that defines the relationship between the price of ...
Related Articles
  1. Options & Futures

    An Introduction To Structured Products

    Learn a simple way to bring the benefits of derivatives into your portfolio.
  2. Options & Futures

    Are Structured Retail Products Too Good To Be True?

    Spot a rotten investment before you get seduced by its sweet promise of profit.
  3. Options & Futures

    Principal-Protected Notes: Hedge Funds For Everyday Investors

    PPNs guarantee to return at least 100% of the original investment and have the potential to return much more.
  4. Options & Futures

    These Financial Products Are Too Complex For The Average Joe

    Structured financial products are so elaborate that investors are unable to assess costs and risk.
  5. Options & Futures

    Principal-Protected Investments: Risks, Fees And Regulations

    Discover if these instruments hit the right note for you.
  6. Mutual Funds & ETFs

    Top 3 Muni California Mutual Funds

    Discover analyses of the top three California municipal bond mutual funds, and learn about their characteristics, historical performance and suitability.
  7. Investing Basics

    What Does Plain Vanilla Mean?

    Plain vanilla is a term used in investing to describe the most basic types of financial instruments.
  8. Options & Futures

    Pick 401(k) Assets Like A Pro

    Professionals choose the options available to you in your plan, making your decisions easier.
  9. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  10. Mutual Funds & ETFs

    Top 4 Investment Grade Corporate Bonds ETFs

    Discover detailed analysis and information about some of the top exchange-traded funds (ETFs) that offer exposure to the investment-grade corporate bond market.
  1. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  2. Are high yield bonds a good investment?

    Bonds are rated according to their risk of default by independent credit rating agencies such as Moody's, Standard & ... Read Full Answer >>
  3. What are the maximum Social Security disability benefits?

    The maximum Social Security disability benefit amount for a single eligible person in 2015 is $1,165 per month, but you can ... Read Full Answer >>
  4. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
  5. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  6. What is a 'busted' convertible bond?

    In finance, a convertible bond represents a hybrid security that offers debt and equity features and risks. While a convertible ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!