In order to hedge an ETF position in a portfolio, one might consider purchasing put options to protect against a decrease in price over some period of time. Some more exotically-structured funds (such as SVXY, XIV, among others, although XIV is an ETN that doesn't have options) define in their prospectuses very specific criteria by which, in a crisis situation, the fund will be unwound and capital returned to investors. The shares are no longer tradable, therefore it seems it would be impossible to fulfill the terms of the option contract.
What happens to existing options positions on a fund when the fund closes in this way? Do they expire worthless (a very undesirable result for a hedge)? Are they required to be cash-settled? I suppose this might be similar to a stock bankruptcy/delisting situation, in which the stock is no longer tradable on an exchange by the expiration date of the option.