Educational content only, not investment advice. All adjustments are decided by OCC case by case.
What happens to call options in an all-cash buyout?
The ODD (Characteristics and Risks of Standardized Options), as quoted by the Options Industry Council (OIC), says: when an underlying security is converted into a right to receive a fixed amount of cash, options "will generally be adjusted to require the delivery upon exercise of a fixed amount of cash, and trading in the options will ordinarily cease when the merger becomes effective."
The practical result:
Example: a $40 call on a stock being acquired for $50 cash per share is worth $10 per share ($1,000 per contract) once the deal closes, regardless of how much time was left. A $55 call is worth zero.
This is why option premiums often collapse after a cash deal is announced: the stock tends to trade near the deal price, and implied volatility drops.
What happens to options in a stock-for-stock merger?
The deliverable changes to the acquirer's shares. OIC's example: if each share of the target becomes 0.50 shares of the acquirer, each 100-share option now delivers 50 acquirer shares, and short call holders who are assigned must deliver 50 acquirer shares per contract at the original strike. Fractional shares are typically settled in cash, and the option symbol usually changes to a non-standard root with a numeral (for example, a "1" suffix).
In an election merger, where shareholders choose cash or stock, OIC says the deliverable is usually based on what non-electing shareholders receive. Call holders who want a different form of consideration must exercise before the election deadline and make their own election.
Are options adjusted for tender offers?
No. OCC By-Laws Article VI, Section 11, Interpretation .03 (quoted by OIC) says adjustments "will not be made to reflect a tender offer or exchange offer." Options are ordinarily adjusted only when a merger or similar event becomes effective after the tender offer completes.
How are options adjusted for spin-offs?
A spin-off is treated as a distribution. OIC's illustration: if a company distributes one share of a subsidiary for each share held, the adjusted option typically keeps the same strike and number of contracts, gets a new symbol, and delivers 100 shares of the parent plus 100 shares of the spun-off company. Quoted prices for the adjusted option then reflect both stocks.
When does a special dividend adjust options?
OCC Information Memo #54262 (March 2024) sets out the policy:
How the adjustment is made: OCC's preferred method is to reduce strike prices by the dividend amount on the ex-date. If the amount is not known in advance, or the reduction would push a strike to zero or below, the dividend is added as a cash component to the deliverable, usually with a symbol change.
Example from the memo: a $0.10 special dividend on a 100-share option is worth $10, below the $12.50 threshold, so no adjustment is made.
Regular dividends matter for options in a different way: they are priced into premiums and can trigger early exercise of in-the-money calls before the ex-date. See how dividends affect covered calls.
How are options adjusted for stock splits?
For a forward split like 2-for-1, you typically end up with twice the contracts at half the strike. For reverse splits, OIC says the strike and number of contracts usually stay the same, but the deliverable shrinks (a 1-for-10 reverse split leaves each contract delivering 10 shares). More in our stock split guide.
How can you tell if an option has been adjusted?
OIC lists these signs and tools:
Adjusted contracts often have thin liquidity and wide bid-ask spreads. Read the memo before trading one.
Key takeaways
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By the OptionsPilot Editorial Team. Published October 24, 2026. This article is for education only and is not investment advice.
