It stands for capped index options which are exchange-traded options with a European exercise in which a maximum level is placed on the payout (payoff) in the form of a specified points higher or lower. In the event the underlying closes, at any time during the option’s life, at or through the upper strike or the lower strike, i.e., more than the specified points above or below the strike price, the option is automatically exercised. If the option is not exercised before maturity, it will be automatically exercised at expiration.
This option gives investors the opportunity to participate in upward or downward movements on a stock index (S&P 100 and S&P 500) to a pre-set level. CAPS are initially listed with an at-the-money strike price and a capped price that is 30 points higher (for call CAPS) and 30 points lower (for put CAPS). With CAPS, a single contract is established to constitute two same-expiration index calls or two index puts where the strike prices are at a 30 point distance from each other.
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