Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Income Portfolio - Month Four - Stormy Weather!

|Includes:DIA, HOLI, IMAX, OIH, SONC, SQQQ, SunEdison, Inc. (SUNEQ), TBT, USO, VLO

Riders on the storm 
Into this house we're born 
Into this world we're thrown 
Like a dog without a bone 
An actor out alone 
Riders on the storm 


What a crazy couple of week's we've been having!  Very fortunately, in last month's update of our virtual income portfolio, we had already cashed out $33,084 - more than enough to take us through our first 8 months (our planned $4,000 a month to live on).  We did that using just $200,000 of our $1M in buying power ($500,000 portfolio), staying very conservative and waiting for a bigger dip than the one we had had in June.  

Well, here we are!  We are now 10% below June's bottom and we did do a little bottom fishing, adding positions in WFR, SONC, IMAX, VLO, OIH, TBT and HOLI - positions we'll be reviewing below.  To a large extent, we followed the strategy I called "Don't Just Do Something, Stand There" during this sell-off although it was (and still is) a nail-biter as we tested my August 2nd prediction of the "worst-case" scenario of a 20% drop from the top.  

We stuck to our guns this week and had a lot of fun playing the wild gyrations with our short-term betting but the Income Portfolio is an exercise in managing a "low-touch" portfolio - one that does not require us to make daily adjustments.  I am aware that can be frustrating for people who stare at the markets every day but that is what our short-term trade ideas are for in Member Chat.  That goes for people who are retired or semi-retired too.  You don't HAVE to play every day - or any day for that matter but you do need to work one week a month and that would be this week - the week of options expirations, when we do our update (this post) and then next week we make our adjustments (if any).  

Other than that, if you happen to be home, then you can always check in in our Chat rooms - in the average day there are 5 or 6 trade ideas and you can pick bullish ones or bearish ones, depending on your mood.  In our very active $25,000 Portfolio, we make many, many short-term plays and that's suitable for more active traders but, for good or bad - that is not how we manage the Income Portfolio.  

I did send out one Member Alert that required emergency action this month and that was on August 1st, at 9:41 am, the day before I made my 20% drop prediction on TV (not my fault they didn't have me on earlier!).  We had a spike up at the open and I had already warned in Chat at 9:09 to take bullish plays off the table, selling into the excitement at the open and by 9:41, I had turned more bearish into the silly spike up, saying:

Things are looking good at the open and they’ll probably stay good until/unless we get negative noises from some Tea Party people or other indications the Bill won’t pass. If the Bill does pass, Obama has already said he would sign it so we may not get much of a sell-off until/unless the ratings agencies weigh in with a negative outlook – which is very likely given the shallow and uncertain scope of this deal – especially in light of our downgraded GDP outlook.

What I do believe in is shorting the Dow with DIA Aug $119 puts at $1.20 or the SQQQ Aug $21/23 bull call spread at .85, selling the Sept $19 puts for .55 for net .30 on the $2 spread.

USO Weekly $38 puts are .44, 20 of those in the $25KP for $880! (longs are, of course off).

Let’s be straight about that, all the short-term long, including the ones in the Income Portfolio – are DONE. This was the pop we hoped for and now it’s done and back to cash!

That happened to be the dead top of the market for the month and congrats to all who acted on that Alert.  Those USO puts finished the week at $4, up 809%, the DIA Aug $119 puts are still $7 (up 480%) but we flipped bullish 500 points ago and the SQQQ bull call spread was done on the spike up to $35 on Monday but the bull call spread is still deep in the money at $1.80 and the short puts are just .18 so net $1.62 is up 540% on that spread too.  As I said, if you happen to be around to trade, it's fine to play a couple of these aggressive plays - especially when they are geared towards protecting a generally bullish portfolio like this one.  

As we were not liking the short-term outlook for the markets last month, we had already dumped out of ALL of our short-term bullish positions in the Income Portfolio.  Our remaining short put ideas were all for either Jan 2012 or Jan 2013 and, while they have taken hits, of course, we have a LONG time to recover and, of course, they are all stocks we really, Really, REALLY want to own long-term at the net prices.   

For a full review of our Income Portfolio - You can Join PSW with a Voyeur, Basic or Premium Membership and read this as well as hundreds of other articles that can help you become a better investor.