Backtested a “capital efficient” 85/15 leveraged long/short (SSO/SDS) — beats SPY but here’s the catch
Been thinking about a way to run a long/short-flavored strategy without tying up full capital, using leveraged ETFs to get more notional exposure per dollar.
The idea:
• 85% of capital → SSO (2x S&P 500 long)
• 15% of capital → SDS (2x S&P 500 inverse)
• Rebalance back to 85/15 periodically
Math: $85 in SSO = $170 notional long. $15 in SDS = $30 notional short. Net exposure = $140 on $100 of capital, so effectively 1.4x leveraged long, fully deployed, no cash sitting idle.
I want to be upfront about what this actually is, because I fooled myself a little at first: this is not a market-neutral long/short. Both legs move in the same net direction as the S&P — the SDS leg isn’t hedging the SSO leg in any real sense, it’s just dialing back net leverage from 2x to 1.4x. Every single year in my backtest, SSO and SDS moved as expected relative to SPY, and SDS never offset SSO’s direction — it just shaved the edges off gains and losses.
Toughts? Performance on back test is strong