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Capped Index Options (CAPS)
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Call CAPS Payoff Pattern at Expiration Put CAPS Payoff Pattern at Expiration An exchange-traded, single contract, vertical option spread with European-style exercise plus an early exercise price trigger. CAPS incorporate in a single contract either two index calls or two index puts with the same expiration date and with strike prices 30 points apart. The two options are traded as a single, inseparable option spread contract. The early exercise price trigger terminates the contract and provides for settlement at the maximum value of the CAPS if the underlying closes at or through the upper strike price on call CAPS or the lower strike price on put CAPS at any time during the life of the contract. If the early exercise trigger does not terminate the CAPS sooner, automatic European- style exercise occurs at expiration. See also Automatic Cash-Out Call, Early Exercise Price Trigger, Capped Call, Exploding Option.
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