What would you do if you were about to allocate cash right now…

You ever think about how many times you have to cast when you flyfish to catch a monster trout? It’s like that in trading too, isn’t it? You have to cast and cast and hope that everything comes to together and you eventually catch a few big ones, and some of those you actually nail and eventually you might reel in a couple trophies. But it takes time, disciplines, perseverance and repetition to be a great fisherman like my father is. Or to be a great trader like we all are striving to be with our portfolios.

I spent the first part of last week explaining why I was raising cash and selling down my positions. Long story short, it was time to as I put it at the time, “catch my breath” and literally go fishing (in Colorado with my father!) after a big run in both the markets and my personal account. And now I’ve got more cash on the sheets right now than I’ve had in several weeks. And now I’m looking to build both my favorite long positions up using mostly long-dated call options and/or common stock as well as building up my shorts using mostly puts and long-dated put options.

The number one question I get from my subscribers is “what would you do if you were about to allocate cash right now?” So let’s talk about what I’m planning to do with this cash right now.

First off, with the futures through the roof this morning and with us still being much more long than short overall in the portfolio, I’m going to get to work building up a brand new short position.

As I outlined in detail in last week’s Revolution Investing, my weekly investment newsletter published by Marketwatch, I think Wells Fargo has some trouble ahead. With their outsized residential mortgage portfolio and, in my opinion, some rather aggressive market assumptions about the value of their assets, I’m starting with some longer dated puts in this one. Specifically, I’m looking to buy January 2012s with strike prices ranging from $27 to $30 or so.

I’m also going to be covering my XLF short which has been a winner for us, but as an ETF with other TBTF banks like JP Morgan, Citigroup and Bank of America as holdings, it doesn’t provide the oomph that a single stock that we’ve done our homework on can.

I’m also going to add to our existing Marvell common stock position that we bought just under these levels. Marvell doesn’t report for another couple weeks still, and that will definitely be a catalyst for the stock if nothing else is in the meantime. The bears are sure the company’s going to feel the pain from their customer, Research-in-Motion’s endless decline. I, on the other hand, am expecting the incredibly demand for Marvell’s chips from the booming Kinect business that Microsoft just told anybody who was paying attention all about on their recent earnings call to offset that RIMM demise. At this point, I’ll likely continue to add common stock.

We just might catch ourselves a winner or two like we did this week on the river. How about this one:

Much, more more details to come as the trading day, week, month, year…as the trading casts we all have to put into the river markets continue.

Cody Willard writes Revolution Investing for Marketwatch and posts the trades from his personal account at TradingWithCody.com. At time of publication, Cody was net long Marvell and Microsoft and net short XLF.