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What happens to my options if the company goes bankrupt?

When a company goes bankrupt, its options usually keep existing. Calls collapse, puts jump, and a put seller can be assigned at the full strike on a stock worth almost nothing. Here's each side, with the numbers.

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

The short answer

A bankruptcy filing doesn't cancel your options. They keep their strike, their expiry and their 100 shares, at least at first.

What changes is the stock. It usually drops hard on the news. It may be delisted and move to the over-the-counter market (OTC, trading between dealers instead of on a big exchange). Bankrupt companies' OTC tickers often get a Q on the end, as a flag.

So:

• Calls usually lose almost all their value.
• Puts usually gain a lot, since they let the holder sell at the strike.
• Put sellers face the worst case: buying 100 shares at the strike on a stock worth pennies.

The options often go closing-only (see Closing-only options). You can close what you hold, but nobody can open new positions.

Chapter 11 and Chapter 7, in plain words

In the US, two kinds of bankruptcy come up most:

• Chapter 11 is a rebuild. The company keeps running while it reworks its debts. Old shareholders often end up with very little, or nothing, when it comes out the other side.
• Chapter 7 is a shutdown. The company sells what it has to pay its lenders. Shareholders are last in line.

Either way, shares sit at the very back of the line. That's why the stock tends to fall so far. And it's why a put seller's risk is real even when the company "might recover."

The worked example: a short put when the company files (an illustration, not a trade idea)

Here's a made-up case. XYZ trades at $12. You sell one Cash-secured put with a $10 strike for $0.50. You collect $50. Your broker sets aside $1,000 ($10 × 100).

Two weeks later, XYZ files for Chapter 11. The stock opens at $0.40. It's moving to the OTC market under a new ticker ending in Q. Your put is now deep in the money.

Here's where you could end up:

Look at the shape of that table. The premium was $50. The loss is 18 to 19 times bigger. And the gap between "assigned at $0.40" and "shares cancelled" is only $40. Once the stock is that low, almost the whole strike is already lost.

That's the true worst case of a short put. It's not a bad dip you can wait out. It's (strike − premium) × 100, or $950 here. My page on a short put if the stock goes to zero works that rule through bigger examples.

What if you're assigned on a bankrupt stock?

You pay the strike and get 100 shares. In this case, that's $1,000 for shares worth about $40.

Then the hard part starts:

• The shares may trade OTC, where fills can be slow and spreads wide.
• There are usually no new listed options, so you can't sell a Covered call. The next step of the wheel strategy is gone.
• If the plan cancels the old shares, they go to zero, and you can't sell them at all.

Some put sellers buy back before expiry just to avoid holding the shares. That costs about the same, as the table shows. It just ends the trade cleanly.

Covered calls and long options in a bankruptcy

Covered call. Say you own 100 XYZ bought at $12 and sold a $14 call for $0.40. The stock drops to $0.40.

The call is nearly worthless now. You keep the premium, and you can let it expire. But the premium did almost nothing against the drop.

Long calls. Usually close to worthless. There may be no buyers at any price.

Long puts. These gain value. But "a put on a bankrupt stock" is not free money. To exercise, you deliver 100 shares, so you need to own them or buy them OTC. Selling the put instead depends on there being a buyer, and closing-only markets can be thin. How the contract finally settles depends on the case and the OCC's terms.

Where the real rules live

The Options Clearing Corporation (the OCC) is the group behind every listed US option. When a bankrupt stock's shares change, move or get cancelled, the OCC publishes an information memo saying what the contracts deliver and how they settle. That memo, not a forum post, is the answer for your contract.

Search the OCC's memo page by ticker, or ask your broker. My guide on how to read an OCC memo shows what each line means. If the shares are delisted too, see options when a stock is delisted.

The rule for next time

You can't predict which company files. You can make sure one filing can't break your account.

1. Size every put by the strike, not the premium. A $10 put is a $1,000 bet on owning the stock. Would $1,000 in that one stock be fine?
2. Stick to businesses you'd hold through a bad year. Heavy debt, shrinking sales and late filings come before most bankruptcies.
3. Distrust a premium that looks too rich. A big premium on a cheap stock often means the market sees real trouble ahead.
4. Spread out. Several small positions mean one bankruptcy is a bad month, not the end of the account.

For every company event side by side, see corporate actions and your options.

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