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You would be hit with a margin call far before all of your $1602 was lost.
I would keep the position on until it hits a margin call.
In my backtest of the 5 delta short with 2 longs, the position that was on during late Aug 2015 crash hit 92.7% of account used for IM with a max 22.1% drawdown. So if it had hit 110% and a margin call then I suspect the drawdown would have been maybe 30%.
It is interesting to note that usually after such long periods w/o a 1% intraday move there is no major move afterwards, as is shown in a study by Lawrence McMillan. (The study is part of a paid subscription.)
I had an account with Liberty at this same time. Because the account was losing money I closed it Nov 2011 (luckily right before PFG blew up). This guy opened his account right before Liberty hit a losing stretch.
My Liberty account lost 28.6% or $36k in 2011. It made 98.8% in 2009. Made 25.2% in 2010 but Aug to Dec 2010 it only made 5.3%. Only account deposit was $50k. I did net a $46k profit when I left. Liberty made $50k in commissions. Liberty made more than I did on the account.
Sometime mid 2010 Liberty started doing some option spreads instead of naked options. Liberty was buying an option then selling 3 options further OTM for some of the trades. I think they were doing that because their fees were only based on commissions per contract traded (commissions were $69). They hadn't done that strategy previously.
He was also in early 2011 selling a lot of CL options and losing money heavily on them. He also did strangles and would lose money on one side then lose money on the other side. He should have taken the profit on the winning side when he exited the losing side.
His last 39 trades for me had 19 winners and 20 losers and lost a net $19k. The losers were in CL, GC, KC, CO, S.
I agree with this guy that Liberty's trading strategy changed mid 2010 from what he said he was going to do.
I came across one of their recent email messages that discussed the "Minnesota Spread." Since I live in MN and I've worked in the grain business, I thought - "hmmm, this is something I must have missed."
Turns out it's a made up phrase to describe selling a soy put and selling a wheat call at this time of year. He also calls it an intermarket strangle. Elsewhere in the message he says wheat begins to leave dormancy in January (only true in some years and in some parts of the US) and that most US wheat is winter wheat, or white wheat. The white wheat part is blatantly wrong, and if he started as a grain broker in 1984 he should know that, or he's becoming forgetful.
Anyway, I was curious to see if there was a recent public record of the firms's performance and found the CFTC case. It's quite a tale, starting with a math professor who jumps into an investment he doesn't understand, e.g., thinking "total equity" is the same as "net liquidating value." And when offered a rare opportunity to get out whole, he passed. Liberty, once they realized they had a problem customer on their hands, should have reviewed their paperwork, learned they didn't have a power of attorney on file, and sent the guy chocolates along with a check to get out whole ASAP. If Liberty's attorney is a commodity attorney, he's not a very good one, because he should have known they would be screwed if the case ever went to the CFTC.
I've read the Cordier book, and I got some ideas from it, but was struck by the sloppy or non-existent editing. It looks like that sloppiness extends to preparing marketing materials and basic record keeping.
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Exactly what I was thinking. Kimmelman would have probably been upset a lot sooner had he realized his account was down approximately $15k and not up $50k like he thought. Wild Story.
