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I have a covered call on a stock that's getting bought out. Now what?

In an all-cash buyout, your shares are cashed out at the deal price and your short call is settled. If the deal price is above your strike, you keep the gain up to the strike and the premium. Everything above the strike goes to the call buyer.

Options guide · 9-minute read · Updated 2026-10-28

What just happened in your account

You own 100 shares and you sold a Covered call against them. Then a buyer announced it will pay a fixed cash price for every share. The stock jumped overnight, close to that deal price.

Your shares are up. Your short call is now deep in the money, and it shows a big loss on your screen. Both are true at once. Together they tell you one thing: your result is now mostly locked, and it stops at the strike.

This page covers cash deals. If the buyer pays in its own stock, or a mix, see options in a cash-and-stock merger. For every kind of event, see my hub on corporate actions and your options.

The worked example (hypothetical)

This is an illustration, not a trade idea. XYZ is a made-up stock.

• You own 100 shares of XYZ, bought at $40. Cost: $4,000.
• You sell one call with a $45 strike for $1.00. You collect $100.
• A buyer offers $60 a share in cash. XYZ jumps to $59.

The stock trades a little below the deal price because the deal could still fail, and because the cash comes later.

Where your gain stops

If the deal closes at $60, here's how it plays out with the call still open.

That −$1,400 is the real cost of the call here. You still made $600. But a buyout can be one of the biggest jumps a stock ever makes, and the call sold that jump for $100.

What happens to the call when the deal closes

You don't have to do anything for the deal to settle you. One of two things usually happens.

1. You get assigned early. The call has almost no time value left once the stock is pinned near $60. A call holder may exercise before the deal closes. You'd sell your 100 shares at $45 and get $4,500. Same +$600 result. Our assignment guide shows what that looks like in your account.
2. The deal closes with the call still open. Your shares turn into $6,000 cash. The call can't deliver shares any more, so it is settled in cash for its Intrinsic value. The OCC usually moves its expiration up to around the closing date. That is called Accelerated expiration. See call options in a cash buyout.

Traders sometimes panic at this point. The shares vanish from the account, but the short call can still show for a day or two, with a big red number. The cash from the shares is there to cover it. The two settle against each other.

If your strike is above the deal price

Say you had sold a $65 call instead, for $0.40. The deal pays $60.

The call can never be worth anything at $60. When the deal closes, it settles at zero. You keep the $40 premium, your shares are cashed out at $60, and your result is $6,000 − $4,000 + $40 = +$2,040.

That's the lucky case. It's not something you can plan for, because nobody tells you a buyout is coming.

Your choices now, with numbers

Back to the $45 call, with XYZ at $59. The call costs about $14.20 to buy back ($1,420).

How those add up:

• A, deal fails: the call expires worthless. Shares at $38 lose $200. Plus $100 premium = −$100.
• B, deal closes: $6,000 − $4,000 − $1,420 + $100 = +$680.
• B, deal fails: shares lose $200, the buyback cost $1,420, premium +$100 = −$1,520.
• C: $5,900 − $4,000 − $1,420 + $100 = +$580, whatever happens next.

Look at choice B. It looks like "taking back the upside." There's very little upside left to take: about $1 a share, from $59 to $60. In return you take on the whole risk of the deal breaking. When deals break, the stock usually drops back toward where it was before. See the buyout fell through.

Choice A is usually the calm one. Your result is close to settled, and if the deal fails, the premium still softens the drop.

Could a higher bid change this?

Sometimes a second buyer bids more. If XYZ ends up at $70, a plain shareholder gains $3,000. With the $45 call, you still make $600. The call caps you no matter how high the bidding goes. Don't buy the call back hoping for a bidding war. That's a guess about the future, and the price you pay for it is the deal-break risk in choice B.

The rule for next time

• Sell calls only at strikes you'd be glad to sell at. A buyout makes that question real overnight.
• On a stock that's a known takeover target, you're selling cheap upside. Read selling covered calls on a buyout target before you do it.
• Keep the outcome table in your journal. Write the strike, the premium and the result if the stock doubles. If that last number would upset you, pick a higher strike or skip the call.

Selling calls is the second half of the wheel strategy. A buyout is the event that shows most clearly what the call was trading away.

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