What happens to options in a buyout depends on what shareholders get paid. In an all-cash deal, the Options Clearing Corporation (OCC) swaps the 100 shares behind each contract for cash at the deal price, so in-the-money options lock in their intrinsic value and every at-the-money or out-of-the-money option becomes worthless. In a cash-and-stock deal, the contract instead delivers the acquirer's shares plus cash per 100 target shares, and it keeps trading. Two 2026 closings show both paths: ProAssurance ($PRA) at $25.00 cash, and Qorvo ($QRVO) into Skyworks ($SWKS) at $32.50 cash plus 0.960 of a Skyworks share.
This page covers listed equity options cleared by OCC. Employee stock options and restricted stock units follow the merger agreement instead, which is why Qorvo's closing 8-K handles "Treatment of Equity Awards" in a separate section from the merger consideration.
The rulebook: who decides and what the rule says
OCC, not the exchanges or the companies, adjusts listed options when a deal closes. Until late 2025 the adjustment rules sat in Article VI, Sections 11 and 11A of OCC's By-Laws. On December 12, 2025, the SEC approved SR-OCC-2025-017 (Release No. 34-104389), which moved that text into a new Chapter XXVIII of OCC's Rules (Rules 2801 to 2805). OCC described most of the move as a relocation without substantive change, so older memos that cite the By-Laws describe the same mechanics.
Two provisions do most of the work in a buyout. For cash deals, Rule 2803(d)(2) says that when a stock "is converted into a right to receive a fixed amount of cash," OCC replaces it "with cash in an amount per share or unit equal to the conversion or redemption price." The next sentence is the one option holders need to know: "the value of all outstanding in-the-money options will become fixed, and all at-the-money and out-of-the-money options will become worthless."
For stock or mixed deals, Rule 2803(d)(3) covers a stock "converted into a right to receive another security or a combination of another security and cash." OCC replaces the old shares with the shares of the resulting company plus cash at the deal terms. Where shareholders get to choose between cash and stock, Rule 2803(i) says the adjusted deliverable "will generally be based on the consideration accruing to a non-electing shareholder."
Then comes the clock. OCC Rule 807 says that when an option is adjusted to deliver a fixed amount of cash, "the expiration date of the option contract will ordinarily be accelerated to fall on or shortly after the date on which the conversion of the underlying security to a right to receive cash occurs." When the SEC approved the American-style version of that rule in January 2007, it set the exercise-by-exception threshold at $.01. Calls struck at least one cent below the cash amount, and puts struck at least one cent above it, are exercised automatically unless the clearing firm says otherwise.
All-cash deals: ProAssurance at $25.00
The Doctors Company closed its purchase of ProAssurance on June 26, 2026. Its press release says it "acquired all outstanding shares of ProAssurance for $25.00 per share in cash" and that "Public trading of ProAssurance securities has ceased." TTFY's ProAssurance deal coverage followed the regulatory approvals that came before the close.
Under Rule 2803(d)(2), each standard $PRA contract stops delivering 100 shares and starts delivering $2,500 in cash (100 x $25.00). Nothing can move that number again, so the option's value is just the gap between strike and cash. The strikes below are illustrative. The $25.00 is the real deal price.
| $PRA contract (illustrative strike) | Arithmetic at $25.00 cash | Fixed value per contract |
|---|---|---|
| $20 call | ($25.00 - $20.00) x 100 | $500 |
| $22.50 call | ($25.00 - $22.50) x 100 | $250 |
| $25 call | At the money, no gap | $0 |
| $30 call | Strike above the cash amount | $0 |
| $30 put | ($30.00 - $25.00) x 100 | $500 |
| $22.50 put | Strike below the cash amount | $0 |
Why out-of-the-money calls go to zero. A call is a bet that the stock can trade above the strike before expiration. Once the shares have turned into a fixed $25.00 claim, there is no stock left to rally, no bidding war still possible and no volatility. A $30 call has no route back to value, even if it was listed with two years left. The time value is gone the moment the deal closes, and Rule 807 then pulls the expiration forward so brokers stop carrying dead positions.
Cash-and-stock deals: Qorvo into Skyworks
Qorvo's 8-K says the merger with Skyworks closed on October 5, 2026. Each Qorvo share "was converted into the right to receive (i) 0.960" Skyworks shares "and (ii) $32.50 in cash," and trading of Qorvo common stock "halted prior to the opening of trading on October 5, 2026." TTFY's Skyworks-Qorvo coverage tracked the debt exchange that ran alongside the close.
Under Rule 2803(d)(3), a standard 100-share Qorvo contract converts at the same ratio as the stock:
- Shares: 100 x 0.960 = 96 Skyworks shares
- Cash: 100 x $32.50 = $3,250
- Strike: unchanged per contract, so a $100 strike still costs $10,000 to exercise
OCC publishes the final adjusted symbol and terms for each deal in an information memo on theocc.com, and those memos are the controlling record. The figures here apply the rule to the merger terms in the 8-K. One difference from a cash deal matters most: this contract is not dead. It still moves with $SWKS, so out-of-the-money calls keep their time value.
Worked example: valuing the adjusted Qorvo contract
Package value per contract = 96 x the $SWKS close + $3,250. The $100 and $120 strikes are illustrative, and the $SWKS closes come from Yahoo Finance history.
| Date (close) | $SWKS | 96 shares + $3,250 | $100 call intrinsic | $120 call, distance out of the money |
|---|---|---|---|---|
| Oct 5, 2026 | $83.91 | $8,055.36 + $3,250 = $11,305.36 | $1,305.36 | $694.64 |
| Oct 12, 2026 | $74.70 | $7,171.20 + $3,250 = $10,421.20 | $421.20 | $1,578.80 |
| Nov 4, 2026 | $82.92 | $7,960.32 + $3,250 = $11,210.32 | $1,210.32 | $789.68 |
At the November 4, 2026 close of $82.92, exercising the $100 call means paying $10,000 for 96 $SWKS shares worth $7,960.32 plus $3,250 in cash. That is $11,210.32 received against $10,000 paid, a $1,210.32 gain before premium and costs.
The cash leg also dampens the contract. From October 5 to October 12, $SWKS fell from $83.91 to $74.70, down 10.98% ($9.21 / $83.91). The package fell from $11,305.36 to $10,421.20, down 7.82% ($884.16 / $11,305.36). The $3,250 doesn't move, so it cushions every swing.
What happens to implied volatility
Cash deals: once a firm cash bid is announced, the target usually trades in a narrow band below the offer price. Implied volatility on its options tends to collapse, except in out-of-the-money puts that price the risk of the deal breaking (see how reverse termination fees cushion a broken deal). At closing, volatility goes to zero because the contract is a fixed cash claim.
Cash-and-stock deals: after the adjustment, only the share leg moves. At the November 4 close, the 96 shares were $7,960.32 of an $11,210.32 package, or 71.0%. A 1% move in $SWKS therefore moves the package about 0.71%. All else equal, volatility on the adjusted contract runs below plain $SWKS volatility by roughly that ratio. The adjusted series also tend to trade thinly, so wide bid-ask spreads are common.
Early exercise, dividends and assignment risk
- Before a cash close: a deep in-the-money call on a stock pinned near the offer price has almost no time value left. If the target goes ex-dividend before closing, call holders have a reason to exercise early and collect the dividend, so short calls face assignment the day before the ex-date.
- After a cash close: the value is fixed and earns nothing while the position waits for the accelerated expiration. Exercising early only gets the same fixed cash sooner.
- Cash-and-stock adjusted contracts: whoever exercises gets the 96 acquirer shares plus the cash. Anyone who is short such a contract can be assigned at any time on an American-style option and must deliver the whole package, cash leg included.
- Puts near the deal price: a short put in a cash deal is assigned automatically at expiration if its strike sits $.01 or more above the cash amount.
Common mistakes checklist
- Buying cheap out-of-the-money calls on a cash target and holding them through the close. If no higher bid appears, Rule 2803(d)(2) makes them worthless.
- Assuming the old expiration date still applies. Rule 807 pulls cash-adjusted expirations forward.
- Pricing an adjusted mixed-deal contract off 100 acquirer shares. Price the real package: 96 $SWKS plus $3,250.
- Confusing employee stock options with listed options. The merger agreement governs employee awards; OCC governs listed contracts.
- Ignoring the dividend calendar on short in-the-money calls before a deal closes.
- Trading adjusted series without checking the OCC memo for the final deliverable and symbol.
More deal mechanics are in the Analysis section, including the Reverse Morris Trust explainer for spin-merger structures, and current deals are tracked on the TTFY homepage. This is general information about clearing rules, not legal, tax or investment advice.
Bull/Bear Verdict
Bull Case: The rules are mechanical and published. In-the-money holders in a cash deal get a fixed, known payout, and in a cash-and-stock deal like Qorvo the contract keeps trading and its $3,250 cash leg cushions swings in the acquirer's stock.
Bear Case: In a cash deal, any time value left in at-the-money and out-of-the-money options disappears at closing, expirations move up, and adjusted contracts can trade thinly with wide spreads. Short calls also face early assignment around dividends.
FAQ
Do my options disappear when a company is bought out?
Not right away. OCC adjusts them. In an all-cash deal they become cash-settled at the deal price with an accelerated expiration. In a stock or mixed deal they convert into a contract on the acquirer's shares plus any cash.
What happened to $PRA options at $25.00 cash?
Under Rule 2803(d)(2), each contract's deliverable became $2,500 in cash (100 x $25.00). Calls struck below $25 kept their intrinsic value. Calls at or above $25 became worthless.
What does an adjusted Qorvo option deliver?
Applying the merger terms to a 100-share contract gives 96 $SWKS shares (100 x 0.960) plus $3,250 in cash (100 x $32.50), against the original strike times 100.
Why does implied volatility drop after a buyout announcement?
A firm cash offer pins the target near the offer price, so there is little movement left to price. The main remaining risk is the deal breaking, which mostly shows up in out-of-the-money puts.