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.

The Trade:

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

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