Staying alive in this topsy-turvy market

It has been a week since I last posted, and what a week it has been. We witnessed Hurricane Gustav and its less than disatrous landfall, the postponement and then spectacular conclusion of the Republican convention where we were not disappointed by Gov. Palin (really, better than hoped for) and Sen. McCain. And we saw another week of violent whipsawing in the stock market.

What to do?

I have been successful playing the whipsaw. I don't see any other way to go, other than to hunker down in cash and take a long nap. In my trading account (my retirement accounts are full of conservative high dividend, buy-and-hold stocks and funds) I continue to play the trading range of the Financial index. UYG and SKF are the two bookends of the trade, SKF being short and UYG being long. They are both based on the XLF S&P index for Financials, but levered by 2X. The XLF range is oscillating between 20 and 23 since mid-July with a round trip every 10 days (which is very volatile).

In the latest cycle, I closed out my UYG Sept 25 sold puts contracts on Wednesday for around $3 (with the XLF around 22.00). Then I sold puts on the SKF October 125 for $20. On Thursday, at the open, the XLF moved to 22.50 and I could have sold more SKF puts at $23, but I held on as I was in the red. By Thursday close, the XLF had dropped 6% and was at 21.50. My SKF puts were in the black.

Today, on Friday, the XLF continues to drop and is now close to $20. The SKF which was at $110 on Thursday at the open, is now at $123. UYG has gone from $23.50 to $20 as of now. As mentioned, $19 or just a little less, is the low end of its 7 week range. I have a "buy to close" order on the SKF puts at $10.50 and a "sell to open" order on another round of UYG sold puts (Sept 25) for $7 (which will execute when UYG gets close to 19). I expect to close out the SKF today or Monday, depending on how quickly the market drops, and then get back in for the ride back up on the UYGs next week. I will continue playing this cycle until I can't.

Another trade on the horizon is selling more PWE canroy puts short. PWE is approaching its 24 month weekly low of $25. (it did hit 23.50 for one day on Jan. 24). It has corrected back to the level it was at when Nat Gas was $5.50 and oil was $70. But they are not at those low levels. PWE gets sold down hard by speculators even though it is not a speculative stock with its 15% dividend. It will always bounce back based on solid cash flow for the forseeable future.

The PWE Dec 30 put is at $5 as of today. I have orders in to sell puts at $5.50 and $6, giving me prices of $24.50 and $24 on the underlying stock if assigned. I will take that price on PWE any and every day.