: Can I exercise my put if a company goes bankrupt? If I purchase a stock and a protective put, and the company goes bankrupt, can I still sell my stock at the strike price of the put?

Vote Up Vote Down   0 Reactions

Login to give Reaction!

according to the Options Industry council ( www.optionseducation.org/tools/faq/splits_mergers_spinoffs_bankruptcies.html ) put options

the shares (and therefore the options) may continue trading OTC but if the shares completely stop trading then:

if the courts cancel the shares, whereby common shareholders receive nothing, calls will become worthless and an investor who exercises a put would receive 100 times the strike price and deliver nothing.

The reason for this is that it is not the company whose shares you have the option on that you have a contract with but the counterparty who wrote the option. If the counterparty goes bankrupt then you may not get paid out (depending on assets available at liquidation - this is counterparty risk) but, unless the two are the same, if the company whose shares you have a put option on declares bankruptcy then you will get paid