Will the long leg of an option spread be automatically exercised before expiration if the short is assigned?

Introduction

Exercising an equity call option prior to expiration ordinarily provides no economic benefit as:…

You should review your positions prior to expiration to determine whether you have adequate equity in your account to exercise your options. You should also determine whether you have adequate equity in the account if an in-the-money short option position is assigned to your account. You should also be aware that short options positions may be exercised against you by the long holder even if the option is out-of-the-money…

The answer depends upon whether the assignment occurred at expiration or prior to expiration (i.e., an American Style option). If the assignment takes place prior to expiration, neither IBKR nor the clearinghouse will act to exercise a long option held in the account as neither party can presume the intentions of the long option holder. At expiration, many clearinghouses employ an exercise by exception process intended to ease the operational overhead associated with the provision of exercise instructions by clearing members. In the case of US securities options, for example, the OCC will automatically exercise any equity or index option which is in-the-money by at least $0.01 unless contrary exercise instructions are provided by the client to the clearing member. Accordingly, if the long option has the same expiration date as the short and at expiration is in-the-money by a minimum of the stated exercise by exception threshold, the long option will be automatically exercised effectively offsetting the stock obligation on the assignment. Depending upon the option strike prices, this may result in a net cash debit or credit to the account…

In the case of U.S. securities options, the OCC will automatically exercise option contracts at expiration only if the option is in-the-money by $0.01 or greater.

As a result, account holders maintaining a call (put) spread with the short leg having a lower (higher) strike price that the long are subject to delivery risk if the short leg is in-the-money by $0.01 or greater and the long leg is not…