Monday morning and the bulls are off to the races. VIX is down 4% and the indices are destined to close in the green despite worsening conditions in the middle east. What, me worry? is the mantra carrying us along to the inevitable SPY 200 payday.
Here's a look at this morning's markets with the freestockcharts M3 template and below that is an interesting (to me) look at what I'll call the XIV premium chart (also the VIX premium chart). They look at the value of SPY relative to the value of XIV and VIX respectively. Now we talked extensively before about XIV being and ETN tradeable only as a security and VIX being an index tradeable only using options (or futures), so there is instability between the 2 instruments.
Nevertheless, we can see in hindsight that trading XIV in lieu of SPY with M3 has been a wise choice and that going forward if XIV is mean reverting to SPY then we may be able to redefine the argument for trading SPY based on XIV momentum. Our goal of course is to use M3 to detect this regime change and capitalize it. Meanwhile, the XIV juggernaut keeps chugging ahead.