if I take an option position in a company and then it's acquired - what happens to my options?

CUWu answered one year ago …

Well, I guess the answer is, "it depends". And what I mean by that is, if the strike price of the call option was below the acquisition price, then you'll make out like a bandit when the acquisition is announced (for the record, you should sell at this point and NOT wait for the acquisition to go through -- just in case).

But if the strike price is ABOVE the acquisition price (especially if it's substantially higher), then watch out because that option is going to get smacked. Picture people who were hold Bear Sterns, in the money call options on the Friday before JP Morgan took the company over for $2 per share? Those options were now WAY out of the money and probably dropped 95% or more.

Hope that helped :)