Capped Style Option

A Capped Style Option is an exotic options contract with a built-in automatic exercise feature that triggers when the underlying asset's price reaches a predetermined cap level before the option's expiry. Once the cap is hit, the option is automatically exercised and the holder receives a fixed maximum payout. Capped options are used to limit the maximum payoff (and therefore the seller's exposure) while offering the buyer participation in price moves up to the cap. They are primarily used in structured products and over-the-counter (OTC) derivatives markets.