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What happens to my options in a spin-off?

In a spin-off, listed options on the parent are usually adjusted so each contract delivers 100 parent shares plus the new company's shares. The strike stays the same. You now hold an option on a package, and it trades thinly.

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

The short answer

This page is about listed options, the kind you trade on an exchange. Employee stock options follow the company's own plan, which is a different thing.

In a Spin-off, a company splits off part of its business as a new, separate company. Shareholders get shares of the new company for free. The parent's share price usually drops by about what the new shares are worth.

Your options don't get the new shares directly. Instead, the OCC (the Options Clearing Corporation, which stands behind every listed US option) usually changes what the contract delivers:

• Before: 100 shares of the parent.
• After: 100 shares of the parent plus the new company's shares that 100 parent shares received.
• The strike stays the same. So does the number of contracts you hold.

That new package is called a Non-standard deliverable. The contract often gets a new symbol with a number on it, like XYZ1.

Why the OCC does it this way

The goal is simple. The spin-off itself shouldn't make either side of the option richer or poorer.

Say the parent drops $10 because $10 of value moved into the new company. If the contract still delivered only parent shares, every call holder would lose $10 a share overnight. Every put holder would gain it. Adding the new shares to the contract keeps the total value about the same.

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

Here's a made-up spin-off with round numbers.

• XYZ trades at $60. You own 100 shares, bought at $60. That's $6,000.
• You sold a Covered call with a $60 strike for $1.50. You collected $150.
• XYZ spins off NEWCO. Shareholders get 1 NEWCO share for every 4 XYZ shares.

Your 100 XYZ shares bring you 25 NEWCO shares. After the spin-off, XYZ trades at $50 and NEWCO at $36.

Your adjusted contract now delivers:

The strike is still $60, so the buyer still pays $6,000 if they exercise. That's $60 × 100, the same as before. The package is worth $5,900, so the call is out of the money by $100.

Notice what that means. You can't judge the call by XYZ's price alone. XYZ at $50 makes a $60 call look far out of the money. The real gap is only $100, because NEWCO is part of the deal.

Every outcome at expiry

Value the package each time: XYZ × 100, plus NEWCO × 25. Your starting cost is $6,000.

The top row is the one to look at. The premium covers only a small part of a drop, just like any covered call. The spin-off doesn't change that.

The covered call trap: selling the new shares

Many shareholders sell the spun-off shares right away. With a call open, that move can leave part of it uncovered. Your call is only fully covered while you hold BOTH stocks.

Same made-up numbers. You sell your 25 NEWCO shares at $36 and get $900. Then NEWCO jumps to $48 and XYZ climbs to $62. The package is now worth $6,200 + $1,200 = $7,400. You're assigned.

You have to deliver 100 XYZ and 25 NEWCO. You no longer own the NEWCO shares, so you buy them back at $48. That costs $1,200, which is −$300 versus the $900 you got for them. Your broker may buy them for you if you don't act. Part of your "covered" call was really a Naked call.

If you want to sell the new shares, close the call first. Or check whether your broker lets you hold the call with only the parent shares. Many treat it as partly uncovered.

Why the adjusted contract trades thin

After the spin-off, exchanges usually list fresh options on XYZ that deliver 100 shares of the new, smaller XYZ. Most traders move to those.

Your old, adjusted contract stays behind. Few people want to price an option on a two-stock package. So:

• the gap between the bid and the ask is often wide;
• Open interest shrinks as people close out;
• usually no new expiries or strikes get added for the adjusted contract.

Many sellers simply buy back the adjusted call and, if they still want to, sell a fresh call on the standard contract. Closing a thin contract can cost more than you'd like. Use a limit order near the middle of the bid and ask, not a market order.

What to check, in order

1. Find the OCC information memo for the parent. It lists the new deliverable, the new symbol and the date. My guide on how to read an OCC memo walks through one line by line.
2. Look at the contract in your broker. It should show both stocks in the deliverable. If the spin-off ratio leaves a fraction of a share, the memo says how it's handled, often as cash.
3. Value the package, not the parent alone. Price × shares for each stock, plus any cash.
4. Decide whether to keep the call. If you'll sell the new shares, close the call first.

My page on adjusted options covers the same steps for mergers and splits. For every corporate event in one table, see corporate actions and your options. And if you're running the wheel strategy, the simplest path after a spin-off is often to close the adjusted call and start fresh on the standard one.

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