A model that attempts to mimic SPY performance via a weighted basket of Volatility (VXX), interest rates (TLT), and High Yield credit (HYG)) shows the divergence and convergence as it happens. Buying a weighted basket of the VXX, TLT, HYG against selling SPY (or vice versa), given the tightness of bid-offer spreads, can be profitably traded.
Buy an equal amount of shares in these three ETF’s:
VXX- Volatility ETF
TLT- Treasury Interest Rate ETF
HYG- High Yield Corporate Bond Credit ETF
Sell an equal amount of shares in this one ETF:
SPY- S&P 500 ETF
Monitor the Capital Context link below and when there is a divergence between the green and red lines, make your trade accordingly.
Source via: Capital Context & Zerohedge
Go here to get a intraday chart of the arbitrage model at Capital Context: http://capitalcontext.com/intraday/intraday-spy/
Go here for a in detail of the model and how it ties in with other credit markets: http://www.zerohedge.com/news/financials-underperform-amid-lowest-volume-year