Capping is the practice of selling large amounts of a commodity or security close to the expiration date of its options to prevent a rise in the underlying's price. The writer or seller of an options contract has an interest in keeping the price of the underlying below the strike price for the options to expire worthless.
What is price-cap regulation?
Price-cap regulation is a form of incentive regulation capping the prices that firms in a natural monopoly position may charge their customers. Designed in the 1980s by UK Treasury economist Stephen Littlechild, it has been applied to all privatised British network utilities.
What is the difference between capping and investing?
The information is presented without consideration of the investment investors. Investing involves risk, including the possible loss of principal. Capping is the practice of selling large amounts of a commodity or security close to the option's expiry date to prevent a rise in market price.
What is the difference between pegging and capping?
Pegging is the complementary practice of buying large amounts of a commodity or security close to the expiration date of its options to prevent a decline in its price. Capping is to actively sell the underlying security of a derivative to keep it below the option's strike price.
