Locally-Capped Contract

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Embedded Option

    A provision in a security that is an inseparable part of the ...
  2. Credit Derivative

    Privately held negotiable bilateral contracts that allow users ...
  3. Principal-Protected Note - PPN

    A fixed-income security that guarantees a minimum return equal ...
  4. Structured Investment Products ...

    A type of investment specifically designed to meet an investor's ...
  5. Structured Investment Vehicle - ...

    A pool of investment assets that attempts to profit from credit ...
  6. Surrender Period

    The amount of time an investor must wait until he or she can ...
Related Articles
  1. thinkstock|istock
    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. 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.
  7. Options & Futures

    Writing Covered Calls On ETFs

    The strategy of writing covered calls on ETFs can limit your losses and hedge risk, but they cap your upside potential.
  8. Options & Futures

    How are Bollinger BandsĀ® 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.
  9. 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, ...
  10. Bonds & Fixed Income

    What determines the price of a bond in the open market?

    Learn more about some of the factors that influence the valuation of bonds on the open market, and why bond prices and yields move in opposite directions.

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