Can someone please comment on what happens to PutSpreads (ie. ShortPut + LongPut) in bankruptcy cases? What about Call spreads? The following info was posted some days ago to another forum, but it deals only the case of Long options, but in above spread scenarios we have both Long and Short together... https://optiontradingpedia.com/what_happens_to_options_during_bankruptcy.htm " WHAT HAPPENS TO CALL OPTIONS DURING BANKRUPTCY? When a company declares and files for bankruptcy and you are holding call options, the shares drop and your call options simply expires worthless when the underlying stock hits rock bottom. In fact, it is the same as having the stock drop enough to put those call options out of the money upon expiration. WHAT HAPPENS TO PUT OPTIONS DURING BANKRUPTCY? If you own put options on stocks of a company that has just declared or filed for bankruptcy, you are in for a huge reward. The delivery and settlement of every stock option is guaranteed by the OCC, Options Clearing Corporation, in the US Market. Whoever sold you that right to sell shares of that company at that higher price is obliged to fulfill that obligation, so your profit is guaranteed. The only question is, what happens when that company files for bankruptcy and trading in its stocks and options are suspended? When that happens, trading of that company's stocks and options moves to the Over The Counter (OTC) market or what is known as "Pink Sheet" market where you are able to either sell those put options for a profit or exercise the options and sell the stocks for the same profit. Since it is the company that is going illquid and insolvent and not the person or institution who sold you those put options, you are guaranteed your profit and delivery. The most recent example of this are put options on the collasped Lehman Brothers (ex-Ticker : LEH) which filed for bankruptcy on 14 Sep 2008. After filing for bankruptcy, Lehman Brothers' shares moved from the exchange to the OTC market (Ticker Symbol LEHMQ or LEHMQ.PK) where it traded at $0.05 per share on 18 Sep 2008. That is when put option holders can choose to exercise the put options by buying the shares at $0.05 and selling it at the strike price for a big profit. "
If the company declares bankruptcy and the stock price drops significantly, the call options may become worthless, as the stock price is unlikely to rise above the strike price before the expiration date. This is because the stock is considered a risky investment due to the bankruptcy, and its value may continue to decline and If the company declares bankruptcy and the stock price drops significantly, the put options may increase in value, as the stock price is expected to continue to decline. This is because the put option gives the holder the right to sell the stock at the strike price, which may be higher than the market price of the stock after the bankruptcy. As a result, the put option can be used as a hedge against the decline in the stock price.
I do not even have that. I search and add my own experiences! You can see all of my comments on different forums. I type. I care and I help!
I've shared this before. I had a covered call (a oil exploration company) that went bankrupt. I was trying to clear the call (for tax purposes). I was able to clear it though some South American pink slip exchange...