Investors & Friends:

Here's a summary of our investment actions from the past week.

Long Stocks

1) We sold Medco Health Solutions Inc (NYSE: MHS) on 7/29 @ $53.28 for a 13.1% gain, after it reported nice earnings this week.

Option Strategies - Covered Calls

2) American Axle & Manufacturing Hldngs Inc (NYSE: AXL) - We sold a new round of Oct calls for $0.75.

Option Strategies - Put Insurance

3) Taking advantage of low volatility and cheap options, we bought Aug puts for 5 cents for American Oriental Bioengineering Inc (NYSE: AOB).

Options are currently quite cheap because option investors are not forecasting volatility. Cheap options are generally a good thing for option buyers and a bad thing for option sellers. When dealing with cheap options, consider purchasing insurance to protect existing positions or buying some unlimited profit potential. Some investors do not like to hedge with long options because of time decay. This is understandable. The cost of time decay would be reduced if implied volatility climbs higher. A cheap time to hedge/juice a portfolio with options is when the Volatility Index (VIX) is low. It’s like buying health insurance before major health problems arise.

The Investrio Stock Selector Fund Bull and Bear Market Indicators Report for the week ending 7-31 is attached.

Etcetera

For past averages to be meaningful, the data being averaged have to be drawn from the same population. If this is not the case - if the data come from populations that are different - the data are said to be nonstationary. When data are nonstationary, projecting past averages typically produces nonsensical results. - Bradford Cornell, The Equity Risk Premium

Lead Fund Manager
Investrio