June 2007 Archives

• reflection
• boxing/unboxing
• threading
• references/parameters
• implicit/explicit casts

Performance and network tweaks for Firefox.

Firebug integrates with Firefox to put a wealth of development tools at your fingertips while you browse. You can edit, debug, and monitor CSS, HTML, and JavaScript live in any web page

[BUILDING THE ADX INDICATOR]

To calculate the Directional Movement System:

1. Calculate the Directional movement for today
   

   +DM = Today's High - Yesterday's High (when price moves upward)
   -DM = Yesterday's Low - Today's Low (when price moves downward)

   You cannot have both +DM and -DM on the same day. If there is an outside day (where both calculations are positive) then the larger of the two results is taken. An inside day (where both calculations are negative) will always equal zero.

2. Calculate the true range for the day. True range is the largest of:
   

   Today's High - Today's Low,
   Today's High - Yesterday's Close, and
   Yesterday's Close - Today's Low

   +DM14 = exponential moving average* of +DM
   -DM14= exponential moving average* of -DM
   TR14 = exponential moving average* of True Range

3. Calculate the Directional Indicators:
   

   +DI14 = +DM14 divided by TR14
   -DI14 = -DM14 divided by TR14

4. Calculate the components of the Average Directional Movement Index (ADX):
   
   1. Calculate the DI Difference:
      Record the difference between +DI14 and -DI14 as a positive number.
   2. Calculate the Directional Index (DX):
      

      DX = DI Difference divided by the sum of +DI14 and -DI14
      ADX = the exponential moving average* of DX

"... you can go through thousands of job applications and quite frankly never see a great software developer. Not a one. Here is why this happens. The great software developers, indeed, the best people in every field, are quite simply never on the market."

Internet comic book reviewer takes a break to look into internet dating tips:

10. Kiss her softly, then kiss her passionately.

This is another sequentially challenging one. What you don't want to do is, you don't want to kiss her passionately and then kiss her softly. That would just be seriously messed up. I've made up a little mnemonic device to help me keep it straight.

"First kiss soft, next one passionate,
In World War Hulk, My green homey be smashin' it."

[10 tallest statues in the world]
Not sure if these really are the 10 tallest. Includes Motherland in Kiev, Peter I in Moscow, and Motherland in Volgograd. Plus Statue of Liberty.

[Implementing the Singleton Pattern in C#]
State of the art answer on coding a singleton. The main problem is to have thread-safe access to the singleton while doing lazy construction.

Marketscreen.com provides a variety of scanning tools, both technical and fundamental, that can be customized to your needs. It also allows you to backtest, scan intraday markets, find correlations, and manage risk. It's fairly inexpensive given the information it provides. Plus the website does a great job in explaining the various indicators used.

I'm rather partial to these miniature headphones. I never really got into the iPod bud-phones.
[Shure E4c Sound Isolating Earphones]

Watch Options to Determine Potential Takeover Targets

There has been an increasing use of options to both identify and participate in profiting from the current buyout frenzy. Most of the focus has been on looking for a surge in the volume of call activity and an increase in the implied volatility in near-term options on the belief that these are obvious signs that a company is a takeover target.

There have been many instances of these "unusual" signs in trading activity, such as occurred in First Data (FDC - Cramer's Take - Stockpickr - Rating) and Texas Utility (TXU - Cramer's Take - Stockpickr - Rating). But these transactions often occur too quickly and too close to the event for the average investor to take advantage of the "tell" being provided by the options market.

Some people might find solace in knowing that the activity in both of these cases was brazen and obvious enough to get the SEC off its tuchus and launch official investigations, but that retribution does little to line our pockets or buy our babies new shoes.

A more subtle way to identify takeover candidates is to use the pricing of the LEAP options as a predictive tool for which companies investors believe are buyout targets. That is, look at the implied volatility of options across the option chain over several expiration periods with an eye toward the skew. You're watching for the implied volatility of longer-dated options to be lower than the nearer-term.

For equity options, the typical or normal skew has longer-dated options awarded a higher volatility than shorter-term options. Remember the connection between time and implied volatility. This also assumes there is no known upcoming event such as an earnings report or court ruling within a specific time period. Implied volatility can be viewed as the interest rate on bonds in that the longer the duration or expiration, the greater the impact a change in yield will have on the value or price of the underlying investment product.

With this in mind, remember that when a takeover is announced, especially a buyout that contains a significant cash portion, it will cause a steep decline in implied volatility. That means options across all time frames will basically trade at intrinsic value plus the carrying costs based on the forecasts for the probability and time frame of the deal's closing date.

Traders have become hip to the game that IV will collapse on a buyout and have been selling calendar spreads, that is, buying near-term options and selling longer-term options for a net credit on names rumored to be buyout candidates. It is a much more conservative approach to playing the takeover game; the maximum profit is limited to the credit collected.

One suggestion for keeping the risk or loss to a manageable level: If a deal fails to materialize by two weeks prior to the front month's expiration, then I'd close the position.

The insurance and regional financial services sectors have a number of names where the option chain displays this type of reverse skew, indicating that investors are anticipating more buyouts and consolidation.

For example, Marsh & McLennan (MMC - Cramer's Take - Stockpickr - Rating) is currently trading around $32.50. You can buy the July $35 call for 60 cents per contract, which gives it an implied volatility of 31%, and simultaneously sell the January 2008 call for $1.80, which gives it an implied volatility of just 20%. That results in a net credit of $1.20 for the calendar spread.

This seems to fly in the face of the standard advice to buy options that are cheap and sell the more expensive options based on their relative implied volatility. But this is a case in which one might want to interpret the price configuration or price skew as predictive; there is a good possibility that MMC will be taken over or at least receive a buyout bid. If that should occur the IV would decline and the value of the spread would flatten out. The longer-dated January 2008 options sold short would lose a substantial amount of their time premium.