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.

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!

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

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.

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.

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.

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:

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:

This week the VIX reached an all time high.

There is so much uncertainty and volatility in business right now that banks are even afraid to lend to each other because they're not certain that they will get their money back.

But there's still a way to make some money from the uncertainty by trading in options.

You use a strategy called a "credit spread".

This allows you to collect money from buying and selling option pairs that end up in a net "credit" to your account. You allow the options to expire "out of the money" and you get to keep the amount of the credit. The risk lies with the underlying value of the security you are buying options on. If the security goes "into the money" you will need to watch very closely to see if it will go back "out of the money" before the expiration date.

If that does not look likely, then you will need to "back out" of the trade before your broker comes along and asks you for the stock you sold options on.

That would be a bad thing!

Here's the video version:

Using Market Fear To Your Advantage

When I have incoming advice like this I normally just nod and smile. It's kind of like religion and politics – you're not going to change anyone's mind, so why argue about it. However, if the investing advice seems like it might have some valid foundation, I'll go back later and throw some analysis on it and see how it looks.

I broke my own rule a couple of weeks ago when I bought into some insight delivered by my investing mentor on a conference call. He had outlined a bull call spread on Apple Computer (AAPL) that was going to pay 14:1 when the share price went above $210. I went ahead with the trade on blind faith since I know that John has made a bunch on money on AAPL in the past and he knows the stock well.

The next it seemed to be going in the right direction and I was pretty happy with it. The day after that, however, it started down again and has not really looked back to going up. In hindsight I should have done my analysis and really taken a look at the trend. Yes, AAPL was near what could have been considered a support line, but I should have waited for confirmation.

The options I purchased don't expire until April, so there's time for it to go back up, but it doesn't look as certain as it once did.

Here's the video version: