A quick note, was amazed on the variety of meanings for “getting capped” via a Google search:

Now on to the trading related version of “getting capped”. When you have a long position, one of the key ways to protect the gains against a downside move is to initiate an Option Collar. A Collar is where you sell an upside Call against the long stock position, and then buy a downside Put.

Another strategy is to just sell the upside call, thus creating a Covered Call. But what happens when price moves up through the Call strike? This is where your gain gets “capped”. So when that happens, what do you do?

Here are a few scenarios using my current $DE trade as an example of what to do if your long stock position has a capped gain currently:

• I am long the stock
• I have sold the November 30 weekly 85 Call against it (so it is a covered call)

Price is currently arm wrestling the $85 level and looks very interested in breaking up through it. Here are my potential paths to take:

• Do nothing. ride the trade until expiration this Friday then decide.
• Buy back the 85 Call and sell a Call one strike higher for this week. Not likely a good option given the $2.50 spread between each strike.
• Wait until Thursday to decide on what to do. If I can, buy back the Call for this week and sell an appropriate Call for the new weekly’s that are available then.
• Since the stock could be called away at any time, this is always a path that can get chosen for me.