Capping


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Capping

A practice in which the writer of a call option who holds a long position in the underlying asset sells large quantities of the underlying asset. A call option gives the holder the right but not the obligation to buy the underlying asset from the writer at an agreed-upon price regardless of what the spot price is when the option is exercised. If the underlying asset rises in price, this is advantageous to the holder but not to the writer. Therefore, the writer may practice capping to increase supply in the market and to keep the price of the underlying asset from rising. If successful, the holder of the call does not exercise the option and the writer is able to profit from the premium (or price the holder paid to buy the option).
References in periodicals archive ?
But capping carbon dioxide emissions from power plants was a good start for environmentalists and would set an important precedent for imposing mandatory restrictions.
"We do not support other proposals for less restrictive sulfur targets." Almost as if on cue from the union, the White House scaled back and stretched out the EPA proposal, capping sulfur dioxide emissions at 4.5 million tons in 2010 and 3 million tons in 2018.
According to the state, capping care for the most expensive clients will free up slots for people with less expensive needs.