What happens to options contracts if company gets taken over or if the stock splits?

What happens to options contracts (or their values) if the company gets taken over by another company before the option's expiration date? As a similar matter: if the stock splits, does the strike price get automatically adjusted, or could, for example, a call option which is in-the-money suddenly be out-of-the-money after a split despite there being little change in the fundamental value of the company?What happens to options contracts if company gets taken over or if the stock splits?
All of these occurrences are referred to as ';corporate actions';. In the US, the Options Clearing Corp. (OCC) makes appropriate adjustments for corporate actions. In the case of stock splits, the strike is adjusted downward and the number of options are increased. For instance, for a 2-for-1 stock split, the strike price is cut in half and the number of options is doubled.





For takeovers, the underlying for the options is converted into whatever is received. If one share gets $53 and your calls are struck at $55, you get nothing. If the strike is $50, you get $3. If one share converts to 2 shares of the other firm and $5, that's the new underlying of your option. If it is possible to make your new options look ';standard';, they will make them standard. For instance, if you're given 1.3 shares of the acquiring firm, you'll get options convertible into one share, just 30% more options.What happens to options contracts if company gets taken over or if the stock splits?
Contracts get adjusted for splits.





Takeovers are like any other event that influence the price of a stock. Depending on which side of the contract you are (call, put) the news of a takeover can potentially cause a dramatic change in value of the option price.





Since most options are sold way before experiation it doesnt much matter. Contract prices decay as expiration approaches, so its usually not a good idea to hold them that long.