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Options in a cash-and-stock merger: what does my contract deliver now?

When a company is bought for a mix of cash and the buyer's shares, your options are rewritten to deliver that mix. The strike stays the same. To know if the option is in the money, add up what the contract now delivers and compare it with the strike times 100.

Options guide · 8-minute read · Updated 2026-10-28

The short answer

In a cash-and-stock merger, each share of the company being bought turns into some shares of the buyer plus some cash. Your options follow the shares.

So one contract that used to deliver 100 shares of XYZ now delivers whatever 100 shares of XYZ became. For example: 50 shares of the buyer plus $1,000 in cash.

Three things usually stay the same:

• The strike. A $50 strike is still $50, so exercising still costs $5,000 per contract.
• The number of contracts you hold.
• The expiry date.

The contract now has a Non-standard deliverable. Its value moves with the buyer's stock. For every event that rewrites a contract, see my hub on corporate actions and your options.

How the new deliverable is built

Every listed US option is cleared by the OCC, the Options Clearing Corporation. When a deal closes, the OCC publishes an information memo with the new terms. That memo is the source of truth for your contract.

The math behind it is simple. Take what one share of XYZ becomes and multiply by 100.

If each XYZ share becomes 0.5 shares of ABC plus $10 cash, then one contract delivers:

• 0.5 × 100 = 50 shares of ABC
• $10 × 100 = $1,000 in cash

The option usually gets a new symbol too, often the old root with a number added, like XYZ1. That number is how you spot an adjusted contract. My guide to adjusted options covers what else changes.

If the deal lets shareholders choose cash or stock, the memo says which mix the options get. Don't assume it's the one you'd pick.

How to value the adjusted contract

Use one formula:

Deliverable value = (buyer's shares × buyer's price) + cash

Then compare it with the strike times 100.

• A call is in the money when the deliverable is worth more than strike × 100.
• A put is in the money when the deliverable is worth less than strike × 100.

There's also a quick way to find the break point. Take the strike, subtract the cash per old share, and divide by the share ratio. That gives the buyer's price where the option is exactly at the money.

For a $50 strike in our deal: ($50 − $10) ÷ 0.5 = $80. With ABC above $80, a $50 call is in the money. With ABC below $80, a $50 put is.

This is the step people skip. They see "$50 strike" next to ABC trading at $70 and think the call is $20 in the money. It isn't. It's out of the money by $500 per contract.

A worked example: a covered call after the merger (hypothetical)

This is an illustration, not a trade idea. XYZ and ABC are made-up stocks.

Before the deal:

• You own 100 shares of XYZ, bought at $48. Cost: $4,800.
• You sold one $50 call, expiring after the deal is due to close, for $1.50. You collected $150.

The deal closes. Each XYZ share becomes 0.5 ABC plus $10. Your account now shows 50 shares of ABC and $1,000 in cash. Your short call shows as an adjusted contract. If it's assigned, you deliver the 50 ABC shares and the $1,000, and you receive $5,000.

Some brokers hold that cash against the call. Others leave it free in your account. Either way, if you're assigned, you have to deliver it. Check how your broker handles it, and don't spend it while the call is open.

Here's how it ends, by ABC's price at expiry.

Notice what the cash does. The $1,000 never moves. Only the 50 ABC shares do. So your position now swings half as much per dollar of ABC as 100 shares would. But it can still lose most of its value if ABC falls hard.

The same deal for a short put

Say you sold a $50 put on XYZ for $1.50 before the deal, as part of the wheel strategy. After the close, it's a put on 50 ABC plus $1,000.

If ABC is at $70 at expiry, the deliverable is worth $4,500. The put is $500 in the money. You're assigned: you pay $5,000 and receive 50 ABC shares and $1,000 cash, worth $4,500.

Result: −$500 + $150 = −$350. You now own 50 shares of a company you never chose to buy. My guide on options assignment shows each step of what lands in your account.

If ABC is above $80 at expiry, the put expires worthless and you keep the $150.

Why closing is usually simpler than holding

Adjusted contracts often trade thinly. Few new traders open them, because the deliverable is confusing. Market makers quote wide gaps between the bid and the ask.

That means:

• Closing can cost more than the screen suggests. Use a limit order near the middle of the quote.
• Rolling is awkward. New contracts on ABC are standard 100-share contracts. Your adjusted one isn't. You can't roll "the same position" one for one.
• Your covered call no longer matches your shares. If you want a clean position, close the adjusted call, then decide fresh on the ABC shares and cash.

What to do when your stock is in a mixed deal

1. Find the OCC memo for the deal. Your broker can point you to it. Note the new deliverable and symbol.
2. Write the deliverable value as a formula with today's buyer price. Compare it with strike × 100.
3. Work out the break point with the shortcut above. That tells you where the buyer's stock has to be for your option to matter.
4. Decide: close, or hold to expiry. If you hold, keep the cash part available.

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