Say I purchase OTM puts with a $5 strike and the underlying company is acquired through a tender offer that pays $19.00 cash per share. My contracts are accelerated and adjusted to reflect the new terms. The contracts become worthless, but do I receive the premium, and which premium, if any, do I receive? The premium that the acquiring company is paying per share or the premium of the $5 strike?

  • Buying an option is a debit transaction. You paid that premium. The only way to get some of it back (or profit) is to sell it. In your scenario, as Joe pointed out, with the accelerated expiration, your put has no value and is worthless. Buh-bye premium :->( – Bob Baerker Apr 18 '19 at 19:23
  • The option is only a right to sell the stock at the strike price. If someone acquires the company (buys all of the stock) at a certain price, then the price of the stock is effectively fixed from that point on until the stock is de-listed. As a result, any right to sell the stock at a lower price becomes worthless (unless of course, the deal falls through). – xirt May 12 '19 at 3:37

You purchased a $5 strike put. Basically betting the stock would drop to lower than $5. The stock ends its life at a value of $19/sh. Your put expires early, worthless.

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