If I get exercised on a short option but also have a long option more ITM

Discussion in 'Options' started by the learner, Sep 25, 2021.

  1. 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.
  2. destriero


    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.
  3. zdreg


    Automatic exercise is only at expiration.
  4. 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?