Recently I was assigned on a short deep in-the-money put. It created a huge margin call. I called the broker the following day to exercise my long put to flatten out the position. He did that and a month later I got a huge margin charge in my account.
They mentioned that the assignment caused a one day margin debt at 7.15%. Is this a legit charge from the broker or can I fight this?
If you bought the underlying on margin and you held the position overnight then you owe the broker margin interest. This amount would be the borrow rate times the amount borrowed times the number of days held, divided by 365.
You owe the money. Contrary to what most people think should happen, early exercise does happen for a variety of good reasons. I have done early exercise once I decided I would hold a position because I could change the tax status I was under by the exercise.
The broker actually had to cover your charge out of their pocket. They paid interest to a bank or to their customers for carrying deposit balances, you paid them. Unfortunately, assignment settles after hours, but before the open. It happens by random assignment from the options clearinghouse.
There is a process the broker-dealer goes through to determine if you are eligible to trade in options and they send you a painful to read document that is the rules for the contracts. I personally do not like this process because they provide you rules without much context. If you lack experience you could read a rule but not recognize its significance. Nonetheless, under U.S. law that is not an excuse or grounds for recovery. Federal securities laws are buyer beware laws. The duty is to disclose the terms and conditions, not to explain them.
What I would do, if I were you, is imagine that you are going camping in an area with absolutely no cell phone service or computer access. Then look at your positions. Consider what could happen under a variety of scenarios, such as the flash crash or the '87 crash. Remember, you can be in a car wreck. What would have happened if that position had been held open a week?
Could you not just close your position with one trade?
Before you get assigned, you have 1 long put 1 short put.
After you get assigned, you have 1 long put 100 shares of stock.
You close this position by placing one single "covered put" (short stock short put) trade.
As far as I know you are not allowed to have negative buying power in your account even if the positions are defined risk.