Corporate events & settlement
What happens to options contracts if a underlying public corporation files for Chapter 11 Bankruptcy?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Options on a company filing Chapter 11 typically remain listed and tradable, but puts gain value and calls lose value rapidly as equity is often wiped out or heavily diluted in bankruptcy reorganization.
How it works
OCC continues to list contracts as long as the underlying trades, including on OTC pink markets, but strikes are not typically adjusted for bankruptcy itself unless a specific corporate action like a reverse split occurs.
An example
When a large retailer filed Chapter 11, its stock price collapsed toward zero, making outstanding put options worth nearly their full strike value while calls expired worthless.
Risk & limitations
Bankrupt stocks can be delisted from major exchanges, after which options trading in that underlying is typically halted or delisted entirely by OCC.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.