"Shorting Leveraged ETF Pairs" (FAS; FAZ; QLD; QID)

A subject near and dear to our flinty hearts.*
This CXO piece was originally posted in September 2009, we'd been looking at the action for a while longer.
From CXO Advisory:

Studies of leveraged exchange-traded funds (ETF), such as those summarized in “The Unintended Characteristics of Leveraged and Inverse ETFs” and “The Performance of Leveraged ETFs over Extended Holding Periods”, find that the frequent rebalancing actions necessary to maintain targeted leverage substantially affect long-term performance. A reader observed:

“I’ve read so many articles about how the leveraged ETFs are screwy, and they chew up both sides of the market due to their rebalancing, etc. So I’ve been shorting equal amounts of the long and short double ETFs. I’m short the QID and the QLD, short the TWM and UWM, short the UGL and the GLL, and short the DIG and DUG. I figure, if they are bad longs, they must be good shorts. My thinking is that in a STRONGLY trending market, the position may lose some ground, at least temporarily. But in a weakly trending market, or sideways, both will decay nicely. When I look back on the ones that are a few years old, they just melt away (one side more than the other).”

Does this reverse thinking work? To check, we examine the inception-to-date performance of paired short positions for Ultra S&P500 ProShares (SSO) / UltraShort S&P500 ProShares (SDS) and Ultra QQQ ProShares (QLD) / UltraShort QQQ ProShares (QID). Using daily adjusted closes for these 2X and -2X ETFs for the period 7/13/06 (the first date prices for all four are available) through 2/7/11 (about 54 months), we find that...MORE

...In summary, shorting pairs of 2X and -2X leveraged ETFs may pay off over long periods as rebalancing effects grind on fund values, but the data available for guiding inference are skimpy and somewhat “wild.”

Previously:

Oct. 1, 2010
UPDATED: "Shorting Leveraged ETF Pairs (FAS, FAZ: SPXU, UPRO)"

...Cool huh? One short goes against you 60% while the other goes in your favor 90%.
If only they had 6X leveraged ETF's! You'd get 4% per month (approximate, it depends on the implied volatility of the options) on a mirror image pair trade as the rebalancing scrapes off the time premium of the options in the ETF....

June 15, 2009
FAS and FAZ: A Short Seller's Dream?
April 14, 2009
When Leverage and Volatility Collide in ETFs (FAS, FAZ)
April 9, 2009
Direxion 3x Financial ETFs Go Certifiably Crazy (FAS; FAZ etc.)

One approach is to short both of them, in effect writing an option. Ooops, have I said too much?