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Covered call and a tender offer: what happens?

A tender offer usually doesn't change your call. It can still be assigned at the strike, at any time. If you tender the shares backing it, they may be locked up when the call buyer wants them, so close or plan the call before you tender.

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

The short answer

A tender offer is an offer to buy shares straight from shareholders, at a set price, for a limited time. The buyer might be another company or the company itself, buying back its own stock. You choose whether to "tender", which means hand in your shares for that price.

Here's what it means for a Covered call:

• The call usually stays the same. Same strike, same 100 shares, same date. A tender offer is something shareholders choose to join, so the OCC (the Options Clearing Corporation) usually doesn't adjust for it. Check the OCC memo for your stock to be sure.
• The call can still be assigned. If the offer price is well above your strike, call buyers may Exercise early so they can tender the shares themselves.
• Tendered shares may not be there to cover the call. Once you tender, the shares are often held until the offer closes. If you're assigned in the meantime, you have to deliver shares you can't reach.

Why call buyers exercise early

A call buyer doesn't own shares. They can't tender. To join the offer, they have to exercise, get the shares and then tender them.

They'll do that when the offer price, minus the strike, is worth more than keeping the call. So the closer the offer's deadline, and the deeper your call is in the money, the more likely you are to see Early assignment. It's the same idea as early assignment before a dividend.

A worked example (an illustration, not a trade idea)

Here's a made-up case with round numbers.

• You own 100 shares of XYZ, bought at $40.
• You sold a call with a $45 strike for $1.00. You collected $100.
• A buyer then offers $50 a share in cash, by tender offer.
• XYZ jumps to $48. It stays a bit under $50 because the offer might fail.
• Your call is now worth about $3.10. That's $3 of value above the strike plus a little time left.

You have two clean choices.

Choice A: keep the call and don't tender. If the call is assigned, you sell at $45. You give up the jump above the strike.

Choice B: buy the call back for $310, then tender. You free the shares, so they can go into the offer at $50.

Now the outcomes. A tender offer either completes or gets withdrawn.

Look at the bottom row. Buying back the call made sense only if the offer finished. When it failed, the $310 you spent to free your shares was gone, and the stock was back below your cost.

There's a third result too. Many tender offers are for only part of the shares. If more shares are tendered than the buyer wants, each holder may get only part bought, and the rest come back. That's called proration. Returned shares are worth whatever the market says after the offer ends, often less.

The trap: tendering with the call still open

This is the path that catches people. You tender all 100 shares and leave the call open.

Then the call is assigned. You owe 100 shares at $45, but yours are held for the offer. So you, or your broker, must buy 100 more shares at the market price, about $48. That's $4,800 of cash or margin you may not have. You buy at $48 and sell at $45. That leg alone is −$300.

If the offer then completes, your tendered shares still get $50, and the numbers may come out fine. If it's withdrawn or prorated, you're holding more risk than you meant to. For a moment, your covered call was really a Naked call.

Some brokers won't let you tender shares that back an open call. Others will ask you to close the call first. Some accounts, like many retirement accounts, don't allow uncovered calls at all. In Canada, TFSAs and RRSPs generally allow covered calls but not naked ones, and options permissions differ by broker. Check yours before you tender.

What to do, step by step

1. Read the offer. Note the price, the deadline, whether it's for all shares or only some, and the conditions that could make it fail.
2. Find your broker's deadline. It's often earlier than the offer's own deadline, because the broker has to pass your instructions on.
3. Check the OCC memo. It says whether the contract is changed. My guide on how to read an OCC memo shows what to look for.
4. Decide what you want to own after the offer. If you want the $50, close the call before you tender. If you're happy selling at $45, you can leave both alone.
5. Never tender shares that back an open call unless your broker confirms how it handles assignment.

How this fits the wheel

In the wheel strategy, you only sell calls at strikes you'd be glad to sell at. A tender offer tests that. If $45 was a price you were happy with, Choice A is the plan working as written, even though someone else got the $50.

A tender offer is often the first step in a full buyout. If the buyer later closes a cash merger, the remaining options are handled as in a covered call when the stock gets bought out. And if the deal dies, see the buyout fell through. For every corporate event in one table, see corporate actions and your options.

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