A capped style option is designed to limit the amount of profit that an options trader can earn. Since this style of option limits or puts a cap on the profit, it is known as a capped style option.
The basic idea of a capped style option is to automatically exercise an option contract once the underlying asset like shares or commodities reaches a predetermined price level. This is how capped style options work for calls & puts:
Traders arrive at the cap price for a capped style option by:
The capture ratio is used to measure the performance of an asset during market highs and lows by comparing it to a benchmark.
Carrying charge or cost of carry is the money involved in the upkeep or general holding of an asset or financial instrument. Examples of carrying charges include maintenance costs, insurance, and others.
A cash commodity refers to physical goods like aluminium, cotton, gold, silver, zinc, and other tangible goods which are delivered to a trader or company most commonly after exercising derivatives like options and futures contracts.
A cash contract is an agreement between two parties in which the delivery of goods is involved at a predetermined price and date. Typically, bulk buyers like big companies enter into cash contracts on the spot price of a commodity.
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