story circle activation without damage sources

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Was playing a dude who was running soldier tribal.  Dropped Story Circle on my turn naming white since he had a ton of soldiers out.  On his turn, he cast Oblivion Ring targetting my Story Circle.  In response, I activated my story circle for all of my available white mana (4 times).  

He argued that since it wasn't during combat and there was no damage source on the stack from a spell, then I couldn't activate it.  My understanding was that I could activate it whenever I wanted to and have my damage prevention events "floating" till the end of the turn regardless of what phase or step we were in or what was on the stack.  I think I'm right and could have just floated those activations until his combat step where I would have chosen to neutralize his four biggest soldiers.  Please help?
You are correct.

You can activate the ability anytime you want. The ability creates a replacement effect. That effect waits for something white to damage you and the prevents it.

You get to prevent 4 seperate instances of damage.
… and then, the squirrels came.
No, he's not correct, but neither is his opponent.

When the story circle activation resolves, he has to choose the source right then. But it doesn't have to be on his way to deal damage to him.

He could choose the four soldiers, but he'd have to do it when the story circle activations resolved, not when the soldiers dealt damage to him. 
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I think I'm right and could have just floated those activations until his combat step where I would have chosen to neutralize his four biggest soldiers.

Indeed, the delay is too long.
But you can still activate the Circle immediately and be protected from the four biggest Soldiers until the end of the turn. It doesn't matter if those Soldiers are not yet in the process of damaging you: a «protection bubble» can still be put into place. 

615.1. Some continuous effects are prevention effects. (...) Such effects watch for a damage event that would happen and completely or partially prevent the damage that would be dealt. They act like “shields” around whatever they’re affecting.

615.3. There are no special restrictions on casting a spell or activating an ability that generates a prevention effect. Such effects last until they’re used up or their duration has expired.
But you must choose those four sources NOW; you can't wait for Combat.

Tax evasion is nothing but legitimate self-defense against the theft that is tax collection.

Thanks guys!
What if the knights had double strike?
What if the knights had double strike?

Then they would deal damage twice, and it would need to be prevented twice.  You can select the same source for multiple activations of the Story Circle if you want.  Each time it would deal damage, that damage is prevented and one "damage shield" is used up.  A second shield will prevent two instances of damage, a third will prevent three, etc.
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Then the damage from the second strike won't be prevented, since Story Circle only prevents damage from the chosen souce the next time it would deal damage. With double strike, a creature deals combat damage twice, so the Circle would need to be activated twice for this source.

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