x2 leverage delivers the strongest return over the long term.
At what confidence interval, I wonder. I've dicked around back-testing leveraged futures, and holy fuck does timing matter. So between having to get the timing nuts-on, and knowing that you'll suffer sickening losses during volatility thanks to leveraged decay, it seems that this is more a speculation strategy than an investment strategy.
Believe me, I really wanted leveraged futures to be my ticket, but the supporting evidence is not there. Here's a fun website though: http://www.tradingfutures.biz/
Also I'm not sure you are right about volatility decay in a strategy such as mine. There is definitely volatility decay with leveraged ETFs as they replicate 1 day returns, not returns for an extended period. Ie essentially they 'loan'/leverage and repay all in the same day - i.e. buy the future at open and sell at close, whereas with holding a future long term you aren't repaying it the same day. Let me illustrate with an example:
Lets assume for simplicity the S&P 500 is at 100, and an investor is investing in a x2 Leveraged ETF (thus has x2 exposure):
Day 1: Market up 10% - the ETF investor goes from 200 to $220, repays the $100 borrowed and retains $120.
Day 2: Now as the investor has $120, in order to get x2 leverage he needs to borrow 120, thus investing 240. Prices go down 10%, the investor loses $24, repays the 120 'loan' and only retains 96 dollars.
A non leveraged investor would have lost 1 dollar - i.e. from 100 to 110 to 99. Yet the guy with the leveraged ETF has lost 4 dollars - more than double the non leveraged investor.
The point is that with leverage ETFS you are maintaining a leverage of x 2 EVERYDAY, thus you get volatility decay. This isn't the same with the futures strategy above:
Now lets assume he starts with x2 leverage but doesn't repay the 'loan' i.e. doesn't sell the future at the end of each day:
Day 1: Market up 10% - S&P goes to 110, leveraged investor goes from 200 to 220
Day 2: Market down 10% - S&P goes to 99, leveraged investor goes to 198.
Leverage has not decayed his returns he has simply made or lost double the unleveraged investor - as you would expect. Ie at day 2 he has lost 2 dollars compared to the non leveraged investor who has lost 1 dollar. Following this strategy you are not always using x2 leverage, sure he starts out with x 2 leverage (as has exposure to 200 when only owns 100), but as futures are marked to market daily, at day two he has 120 dollars in his account but is only exposed to 220 S&P.