I have heard of this, of your option is not in the money you lose all time premium after a takeover. usually you lose everything unless in the money. It is a risk. Do your DD.
Hmmm seems to favour the option writers. Difficult to see how to price the probability of a bid at a value just outside the strike.
But remember, most of the time you are the winner when writing options on a take for cash. If the deal falls apart, hostile bidder comes in, change from all cash to part stock, you will get hurt being a seller of both calls and puts.
THANK YOU! to all who replied. This has been one of the better informative threads I have read in my short time of being on ET. The information can help us all. As one poster suggested, to due the DD. I went looking for more than the run of the mill info that the OCC puts in the documents that all of us must sign off on as read per the SEC requirement. What I found under their bylaws is extremely scary and shocking. I am not an attorney, but it looks to me like they purposely withhold information vital to those trading options. I would attempt to restate it but I would most probably not say it correctly. Instead I will point those interested to download their bylaws and in the section on adjustments, see subsections .03 and .05. I am still reading this information since it was obviously written by an attorney it is taking some time, but as of right now I am ceasing options trading until I understand this better. Again a very strong THANK YOU to all.