What is an automatic exercise?

Automatic exercise is a procedure whereby purchased (deep-)in-the-money options – or long positions – are automatically exercised by the bank, broker, clearing member or clearing corporation on behalf of the option holder.

This is done to prevent the options from expiring worthless.

In the case of automatic exercise, the options are automatically exercised if they are deep in-the-money, so that the option holder can realise their value instead of allowing the option to expire without any value.