Updated October 9, 2026. The merger agreement controls this, not a general rule. In 2026 buyers still use the same set of outcomes:
- Assume or convert. Your option becomes an option on the buyer’s stock, with the strike and the share count adjusted so the spread is preserved.
- Cash out. Vested options are paid the spread between the deal price and the strike. Underwater options often expire for nothing.
- Cancel. The plan can cancel unvested options if the agreement says so. Some deals accelerate vesting on the closing, or only if you are fired after the closing. That second version is called a double trigger.
Vested and unvested grants are treated separately. Read your option agreement and the “treatment of equity awards” section of the merger proxy. The tax follows the form of the payout: cash for a spread is generally ordinary income on nonqualified options. A conversion into buyer options can be tax-deferred. That is a question for the closing memo, not for a blog checklist.