A capped option is a type of option with a “cap” on the profits. In other words, you can only make as much as the cap for capped options.
When the underlying asset of the option closes above the cap ceiling price for call options (or below the floor price for put options), the option automatically exercises, unlike your typical run-of-the-mill options.
While this takes some of the fun out of the potential profits you could make from options, it does provide some security at a cheaper price. Capped options are usually used when investors think the underlying asset is going to move more like a tortoise than a hare, so the cap is more of a failsafe than an active feature of the option.
If you’re into that tortoise life and are interested in options trading, looking at capped options might be a good place to start.
Related or Semi-related Video
Finance: What is a Closed-End Fund?1 Views
Finance a la shmoop what is a closed-end fund? well it's a type of mutual fund [Man approaches mutual fund desk]
only like a bank at any convenient time it's closed
like its assets are enclosed in its price closed means that the fund itself
doesn't actively trade assets back and forth inside of it on a daily basis like
the most famous closed-end mutual fund in the world is Berkshire Hathaway [Man pushing pram of a baby with Berkshire Hathaway briefcase for a head]
Warren Buffett's you know other child the successful one it owns 40 or 50 key
assets from Geico to train companies to metal machinery firms in Israel to
boatloads of shares of stocks like coca-cola and Gillette and Wells Fargo
all of those assets are wrapped up in a tidy BRK bow and the stock market values [Stock market values appear]
ticker BRK daily by trading it back and forth among investors so yes the assets
inside of the fund do change but in an analogous mutual fund that is open the
value placed on the shares is at what is called net asset value, that value is
calculated by just adding up the 843 stocks at the mutual fund owns or however
many the number is and then just calculating a value based on the number [Calculation appears]
of share units comprising that open end mutual fund the closed-end fund has no
changes that way it's just investors valuing the whole bucket of investments
in one closed number now if you'll excuse us we have to get back to [Baby crying in a crib with Berkshire Hathaway briefcase for head]
babysitting for Warren Buffett isn't she just an angel
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