Let's assume that the strategy is a simple put debit spread on SPY: 1) 1x long put strike 450 2) 1x short put strike 440 Say that SPY drops below 440 and my short put 440 gets exercised. In theory I would expect to be forced to buy 100 units of SPY at 440, so I will need to have 44k USD available to buy the stock. But given I also have a long put strike 450, will my broker (Interactive Brokers) automatically exercise my long put so that I don't have to actually buy the underlying, i.e. the 100 units I am forced to buy at 440 are automatically sold at 450 via the long out exercise. My question is more general and would also apply to calls. So for example I am long call 440 and short call 450 and when the price goes above 450 My short call gets exercised so I need to sell 100 units of SPY at 450. Will my broker automatically exercise my long call to offset this so that I don't have to go through the hassle of exercise? Thank you.
Yes, but only after the close on LTD. If the 450 is ITM they will auto-ex the call. No position on Monday. If you are assigned before the close on LTD you will have to cover the assigned shares and 450C.
Thank you guys. Since I never got a short position exercised, can you tell me how that would work in practice? Do I get notified immediately of the exercise but have time until end of day to settle? So in my example, if I have a long option that is more ITM than the short one that got exercised, I could exercise my long option if/when my short gets exercised, so that at end of day I have nothing to settle? Is that right?