what would happen to the European put if

the underlying goes bankrupt/acquired before the maturity date? Inspired by Bear Stearns especially if it’s cash settlement.

as the holder of the option, you can make a claim for the present value of the option upon bankruptcy. how do you determine the present value of the option? with black-scholes.

no b/r claim – it’s a put, not an obligation of the issuer of the underlying stock. in theory, you’d be quite happy since you’ve made the largest possible profit on your put (the stock has most likely gone to zero). not sure what the exchange rules are about what (if anything) is deliverable upon exercise in that situation (tho that shouldn’t be a problem for cash settlement)…but it’s def not a claim in bankruptcy.

if I were short the put, and the underlying goes bankrupt, and if physical delivery is required, I would not pay the strike unless that guy could show me a real share of stock. lol

yeah, but then some guy named manny from CBOE shows up at your door late at night with a tire iron in his hand and a grin on his face…

I can protect myself using CBOK. lol