Category Archives: SPY Arb

Market Wrap – Jan 28, 2013

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Highlights

  • A mixed day for Equity, generally positive in Creditland
  • Stocks outperformed credit across all sectors except Energy and Capital Goods.
  • RadioShack. Wow.

Sector Wrap   Movers Wrap   Strategy Wrap

Sector Wrap

Equities traded lower on average with 60% of names in our universe losing ground. Still, 5 of 11 sectors eked out an equity gain. Basic Materials and Capital Goods were hammered hard in equityland while Services (especially RSH) outperformed.

Credit provided more of an upside today with 9 of 11 sectors showing at least modest improvement. Continuing with the morning’s trend, Energy was the exception as the sector’s equity improved modestly while its credit deteriorated dramatically. Overall, a mixed up day with some sectors (Consumers & Utilities) seeing credit-equity convergence while others (Capital Goods, Energy, Financials) diverged and the rest held steady.


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SPY Arbitrage Performance (2011-08-17)

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Significant divcergence late afternoon offered most clients excellent opportunity. Two shorts and a long also for more aggressive traders.

The SPY-’HYG-VXX-TLT’ arbitrage performed exceptionally well today with three opportunities for rapid profits (designed for more aggressive traders) and one simple and highly profitable trade towards the end of the day. Most of the day, the model remained closely in sync although an early spike in HYG provided a small window for a 20-30c profit. It seemed there was much more beta to the interest rate and credit market today than we would expect and this provided two profitabel opportunities pre- and post-lunch as the downswing in equities and consistent rally in interest rates (TLT), especially the long end, was more aggressive than in equities.

As the afternoon proceeded and we saw stocks bounce off their lows, we noted modest buying in HY secondary bond markets and in HY CDS markets which seemed to spur HYG up to near its high of the day (while SPY was well of its best levels). This and TLT’s excess move provided an excellent and clear opportunity for a 30-40c gain that was actionable for 30 minutes or so for individual investors. The collapse in the spread was rapid (as we often see) and enabled a complete compression between SPY and our model of fair-value as we approchaed the close.

Another good day for our SPY arbitrage model and we hope readers were able to profit from the intraday insights.