It appears as though Chipotle (CMG) and Panera (PNRA) may finally be heading my direction. A few weeks back I made the assertion that People would not pay extra for gourmet burritos and sandwiches, no matter how tasty they are. At first the markets seemed to disagree with me as those two stocks started going up almost as soon as I placed my positions.

But now with the elections over and the spotlight coming back to economic data it seems that the majority of investors are beginning to target lower prices for both CMG and PNRA. This is good news for my picks as I went short (with put options) on both of these.

My long position with ViroPharma (VPHM) was doing really well a couple of weeks back. My options were up about 20% and I thought everything was on an upward track. In hindsight I should have sold it off, but my greed gland clouded my judgement. It would have been a great move to take my profits and then jump back in when the stock cycled back up.

But instead I'm holding on to my position until I see that return again, and I'll have a better reaction to my gains – take the profits!

Torqued at Apple

I'm still a bit peeved at myself for going long with Apple Computer (AAPL) when it was at about $128. Today it closed below $90. Instead of taking the word of someone that I really trusted, I should have stuck to my own analyses. On the up side, the options don't expire until April, so I have some time to will stock price back up.

New Tech

I'm happy to report that over the past week I assembled a new computer for myself that is much quicker than my laptop. The laptop (an Alienware Area 51m – 7700) started not responding in the middle of whatever I was doing. Now it's so bad that most of the time it does not even get all the way through startup without freezing.

But the new computer is very nice, runs Vista like a dream, and the few games I like to play look absolutely amazing. I had no idea what I was missing!

And the other new tech news is that Verizon is releasing the Blackberry Storm this Friday (11/21/08). It's Rim's (RIMM) first touch screen phone and apparently has a force feedback mechanism on the display so that it feels like clicking keys when you type. I'm looking forward to trying it out and seeing how well my web apps work with it.

My son will be happy to get my old Motorola V710 – he's been eyeing it for over two years now.

In hindsight it seems I made a pretty good call on the bottoms for two restaurant stocks: Chipotle Mexican Grill (CMG) and Panera Bread Company (PNRA).

With Chipotle I bought a "put" position just a few days before the stock really began to rally. It stated going up on news that they were raising prices and buying back $100 million worth of stock. To me it seemed that the economic factors would override those moves so I stayed with my put position.

I cut it even closer with Panera.

I bought my Panera puts during the day that ended up going positive. At the time I made my purchase the stock was still going down, and quickly. I had my order in and it triggered just as the stock turned around. It hasn't really looked back since.

Am I really that good at somehow knowing when a stock is going to bottom and subliminally working against myself?

I hope not, but contrary to fundamental reason these stocks just keep rallying. At this point I'm "in for a penny, in for a pound" as I still think those two will continue their downward trend once the election euphoria is over and financial news once again takes center stage.

In the meantime, there are a couple of positions that I am long in that are doing okay. So good luck to all of you who are long!

Patience has never been one of my strongest attributes. My son, in his own special way, is helping me to develop this trait (at least when it comes to dealing with people) but it's something that still does not come naturally.

Which, frankly, can be a problem when you're investing in the stock market.

Sometimes, a little patience can help you make more money or least help you cut your losses.

A recent, personal, example of this is when I tried out a trading forecasting system. I used it to get into options that followed the S&P 500. When I entered the trade on the first day, I was impulsive and bought CALLs as the ETF was going up quickly. I paid more than I should have for those options because the volatility was high at that particular moment.

Volatility soon dropped down and my options decreased in value even though the ETF value continued to go up. The whole trade cycle ended the next week with my taking a loss as the value of the option dropped to 50% of the amount I paid for it so I opted to limit my losses.

Had I exercised a little more patience and developed a more detailed trading plan I would have purchased the options at a lower price and been able to stay in the trade longer to perhaps realize a gain.

The good news is that I'm a quick learner, especially where money is involved. So losing a little bit has sharpened my discipline and caused me to analyze my trades a little more closely before entering.

With everything that I'm trying to teach my son, I'm actually kind of glad that he's teaching me patience. And with any luck I'll be able to reflect that back to him so we both be more patient men.

Chaos – and not just in the stock market. Sometimes taking care of a 2 year old makes stock swings look rational.

For example, this morning my son and I were playing, making faces at each other. I was holding him in my lap, with my hands keeping him from falling.

Out of the blue he jams his index fingers into both eyes and laughs. I can't grab his arms without letting him drop, so I have to try and convince him verbally (again) that it hurts to stick fingers in other peoples eyes.

As painful as that was, it's a little worse watching the stocks underlying my option picks gyrate wildly and with little regard for the direction I want them to go in. Again, kind of like my 2 year old son.

What's funny about this week is that the stocks I figured would go up, and the ones I figured would go down, went exactly the opposite direction within a couple of days of my placing the trades. I'm not too panicked about that as I'm comfortable that my underlying reasoning is still sound, but "irrational panic" that's driving the market now doesn't lend itself well to reasoning.

And for the record, I heard the statement "It's gone beyond volatility – it's chaos" line from someone on the radio this morning. Not sure who it was, or I would give credit. They were also talking about how most of the small and medium sized investors (except me, apparently) are sitting out of the market right now so institutional moves are really driving what happens.

It's seems the small guys working as a mob bring some stability to stock trades and overall markets.

Go figure.

So I can use that as an excuse to keep working on my portfolio. I'm doing my part to bring rationality and stability to the markets.

For the purposes of practicality, I should be doing much of my trading on paper in a virtual account. And I've done that, but I don't stay focused on it and if I make a big win I feel like a dolt for not doing it for real.

Like the virtual trade where I turned $700 into just over $7,000 in two months.

Sheesh, that would be nice to have in the bank right now.

I've found that nothing focuses my mind (of late) like doing the live trades. The lessons I'm learning will definitely stick with me a bit more. Like the lesson of paying attention to the "implied volatility" of an option before buying into it. Shortly after I bought my CMG options I saw that the stock started going in my direction, but the option value dropped.

This is a relatively painless lesson learned since the stock continues to go in my direction and the options are in the green, but it could be more positive than it is now.

The Perils of Forecasting

The forecasting service I'm trying out is remarkable accurate in predicting market swings. It's not quite as strong in forecasting exactly when or how large those swings will be. While the SPY has been roughly following the changes forecasted, the amplitude changes are larger than I anticipated.

I'm at a loss right now on the SPY position, but on the upside this was forecasted to be a down day and they're calling for it to be positive by the end of the week.

Even if this turns out to be accurate, I don't think I will stick with the service. The regular cost is $200/month and I'm not trading in large enough amounts to make the relatively small swings of the indexes pay off.

I'm not really disappointed about that. I think I'm doing okay with my regular option positions so I'm going to keep doing that and continue building up the account.

I talk a little bit more about this in the video:

Options Volatility & Forecasting

It was forecasted, but that doesn't make it feel much better.

The gains I picked up on SPY by the end of the day yesterday pretty much evaporated by the open today. There was a fairly large gap down on the open and it did not recover enough for me to put in a trailing stop that made sense. However, the market seems to be going in the trend of the forecast, just a bit earlier than expected.

I'm holding on to the SPY position until the end of the week at least, as the forecast is for the S&P to close positive for the week. I'm only trading one contract in this trial so I don't want a sizable part of what I gain to go to the brokerage in the form of commissions.

If there was a larger position in play you could use this tool to play of the interday highs and lows with some degree of confidence.

The other trade I entered into yesterday with VPHM is turning out pretty well so far. I purchased the February options at the $12.50 strike price for $2.50 ($250 per contract). VPHM was trading at $11.46.

As of right now, VPHM is at $12.12 and the options have gone up 10.4% to $2.79. The trend is still looking up, so I'll wait until after the stock reaches $12.50 (my in-the-money strike price) to put in my trailing stop.

I also put in a trade for Chipotle Mexican Grill (CMG). I bought "put" options on this one because with both the trend for this stock going consistently down, and a lot of evidence that people are eating out less, it's likely that business will not be picking up soon for gourmet burritos.

Which is too bad.

I'm a fan of the Garmin-Chipotle bike racing team and I want to see the company do well. I've only been able to eat there a couple of times, but I really enjoyed it. The closest we have to that were I live is Taco Del Mar, which is not publicly traded.

I'll be sure to take the family to Chipotle next time we're near one and spend some of the money I made from their company on a meal.

And on the family front, my wife is on call this week so it's going to be plenty of one-on-one time with the kiddo and I. Plenty of volatility at home and the stock market.

Over the weekend I signed up for a trial of a service that is supposed to forecast movements in the main broad indexes like the DOW, NASDAQ and S&P 500.

The is my first day of trying out the service. I bought SPY options (SPY DEC 95) this morning when that ETF was at $95.33. It closed today at $98.81 for an increase of 3.52%. My options, on the other hand, increased by 9.57%.

So far, so good!

It's early to tell if it's going to work out for me long term, but this particular service has been around for a few years and I'm sure they wouldn't still be in business if they were not providing good results.

This also provides a good example of how options can provide you with a higher profit margin than investing in securities directly.

They're forecasting a peak for tomorrow, so I'll be sure to put in my stops and get out with some profit before SPY heads back down again.

You can check out the service for yourself by following this link.

I also put in a long position on VPHM. From what I can tell it should be able to make it up to about $15 again in the relatively near term. The exact option I chose is BTO 5 VPHM FEB 2009 12.5 Call.

My son just got up from his nap, so that's about all I have time to post for now - looking forward to more interesting results tomorrow.

When I started learning how to trade options in August of this year, I happened across a stock that seemed to fit my criteria for making a trade. This stock was VAR and it met the criteria I had learned for being "overbought" as well as some other criteria that would lead me to believe that the stock would begin decreasing in value.

So I put in an order on my virtual trade tool to buy 5 put contracts for the November options at the $55 strike price (5 VAR NOV 55 P). The options were priced at $1.40, or $140 per contract. As long as the stock would go down, I would make money on the trade. Well, virtual money anyway.

I executed the trade on August 21st when the stock was at $64.13.

For the first month or so the stock did not close below $60, but also did not go above $65, so I was beginning to think this would just trade in a narrow range.

But then there was some less-than-positive press about the company and the share price took a big drop. When I sold the options on October 16th the stock price was at $41.94 and the options were worth $14.80, or $1,480 per contract.

That's a very nice return, but unfortunately that particular scenario is not likely to play out again.

There was a lot of luck in that trade in that bad news about the company came out at about the same time as the volatility in the stock market was going crazy.

But it does give an example of how you make a profit on a trade even when the news is bad.

The other day I came across a very cool blog called "Ryan Thomas: Baby Trader" that is written from the perspective of a toddler trading in the stock market. The kid knows what he's doing!

This last week he made a nice profit on some analysis and predictions of the securities he was following. He trades in stocks directly, rather than options, which made me wonder how much more would he have been able to profit if he had been trading in options.

Without going into to much detail here about how options work, I'll just say that they allow you a bit more leverage and control over stocks than when you buy them directly.

So, doing some quick calculations on one of his trades (the NASDAQ: QQQQ), we can look at the "what if?" scenario.

He bought QQQQ when it was at $29.99. This is near the option strike price of $30, so we'll assume that would have been the option he would have chosen, and also assume he's buying calls since he expected the market to go up in the short term.

Going back time as best we can, we can calculate that the price for that option on Friday, October 10th, would have been something around $3.062, or $306.20 per contract since each contract controls 100 shares of the security.

When he sold on Monday, he got $35.13 for each share of QQQQ for a profit of $5.14 per share. He had 25 shares, so made $128.50 which is about a 17.1% profit. That's a heck of a lot better than any mutual fund you'll find!

Good job Ryan!

But what about the options?

Going through the estimating calculator again, the $30 strike option would have been worth $6.634 ($663.40 per contract). And since Ryan knows what he's doing he would have sold out and made $357.20 per contract, which works out to about a 117% profit.

It's not often that you get to double your money over a weekend, but you can see how the leveraging and valuation of options can increase profits substantially over purchasing stocks directly.

Here's the video version:

Over the weekend I took a look at some securities that I would like to do some credit spreads on. This is a trade strategy where you sell an option that is near the money while you buy an option that is further out of the money. You get to collect the difference when the options expire.

This is a good strategy to use during the week options expire (which is always the third Friday of the month) because you don't have to wait long for the trade to complete and you get to keep the credit. The risk is that the underlying stock for the option you buy will go "into the money" which could put you on the hook for the option if it gets exercised.

So the trick is to find a stock that is not likely to change direction between the time you execute the trades and the time they expire. Normally this is relatively straightforward, but with the world banks and governments involved in resolving the global credit crises, you can't be confident in many of the trends we're seeing.

Most stocks are heading upwards today, but I want to see what happens over the next day or so before committing to anything.

More on the video: