Leverage Rotation Strategy 2x (LRS with SSO)

May 2007 – Sep 2026	Strategy	SPY
Annual return (CAGR)	13.3%	10.7%
Worst drawdown	-40.3%	-55.2%
Sharpe ratio	0.65	0.62
Volatility	23.6%	19.7%
Annual return since publication (Mar 2016)	19.5%	15.6%

Jan 1960 – Sep 2026	Strategy	SPY
Annual return (CAGR)	13.9%	10.6%
Worst drawdown	-53.3%	-55.2%
Sharpe ratio	0.70	0.70
Volatility	21.9%	16.4%
Annual return since publication (Mar 2016)	19.5%	15.6%

This is the two-times version of the Leverage Rotation Strategy (LRS) from Michael Gayed and Charles Bilello's 2016 paper "Leverage for the Long Run", winner of that year's Charles H. Dow Award. It holds SSO, a fund that returns twice the S&P 500's daily move, while the S&P 500 closes above its 200-day moving average, and Treasury bills while it closes below. The three-times version uses UPRO.

The idea#

Daily leveraged funds suffer most in volatile, back-and-forth markets and do best in calm, steady uptrends. Gayed and Bilello showed that the S&P 500 has tended to be calmer and to rise in longer streaks while it trades above its 200-day average, and to be more volatile below it. Using leverage only above the average aims to keep the benefit of leverage while avoiding the conditions that destroy it.

Two times leverage is the middle setting in the paper. It gives up some of the three-times version's return in exchange for smaller swings.

How it works#

At the close of every trading day:

Compare the S&P 500 (SPY) with its 200-day simple moving average.
If SPY closes above its average, hold SSO, which aims to return twice the S&P 500's daily move.
Otherwise, hold Treasury bills (BIL).

What the backtest shows#

With real prices the test starts in mid-2007, when Treasury bill ETFs began trading. Since then the strategy returned about 13% a year, against about 11% for the S&P 500 and 8% for a 60/40 portfolio. Its risk-adjusted return was slightly better than the S&P 500's but below the 60/40 portfolio's, and its worst drawdown, about 40%, sat between the two.

It showed both sides of the rule early. From June to December 2007 it lost 28% while the market slipped 3%, as the S&P 500 crossed its average several times. In 2008 it lost 7% while the S&P 500 lost 37%. Its worst drawdown ran from July 2007 to July 2009 and was recovered by early 2010. Later, it gained 70% in 2013 and 61% in 2021, and lost about 20% in 2011 and 28% in 2022, years in which the market was flat or fell less.

Since the paper appeared in early 2016 it has returned about 19.5% a year, with a risk-adjusted return well above its long-run level.

With simulated history the test starts in 1960. SSO is modelled as twice the S&P 500's daily return, minus the fund's fee and borrowing costs at a little above the Treasury bill rate. Over that span it returned about 14% a year against about 10.5% for the S&P 500, with the same risk-adjusted return. It lost 36% in 2000, and its worst simulated drawdown, 53% from mid-1999 to April 2003, took until 2010 to recover.

When it struggles#

Whipsaws. When the S&P 500 hovers around its 200-day average, the strategy buys high and sells low repeatedly, at double the exposure.
Fast crashes. A fall that starts from well above the average is taken at full leverage until the signal turns.
Bear markets with strong rallies. In 2000–02, rallies above the average kept pulling it back into a falling market.

Using it on Tactfolio#

The live strategy runs these rules each day on SPY, SSO, and BIL, with SSO's real fees and financing costs in place of the paper's flat leverage cost. Copy it to compare with the three-times version, or to try a shorter average.

Year by year

Year	Strategy	SPY
2026*	14.0%	14.0%
2025	18.1%	17.7%
2024	43.5%	24.9%
2023	23.0%	26.2%
2022	-28.2%	-18.2%
2021	60.6%	28.7%
2020	15.2%	18.3%
2019	29.8%	31.2%
2018	-6.5%	-4.6%
2017	44.4%	21.7%
2016	19.3%	12.0%
2015	-11.1%	1.2%
2014	21.5%	13.5%
2013	70.5%	32.3%
2012	25.0%	16.0%
2011	-20.4%	1.9%
2010	-5.0%	15.1%
2009	46.0%	26.4%
2008	-6.9%	-36.8%
2007*	-28.0%	-3.4%

Year	Strategy	SPY
2026*	14.0%	14.0%
2025	18.1%	17.7%
2024	43.5%	24.9%
2023	23.0%	26.2%
2022	-28.2%	-18.2%
2021	60.6%	28.7%
2020	15.2%	18.3%
2019	29.8%	31.2%
2018	-6.5%	-4.6%
2017	44.4%	21.7%
2016	19.3%	12.0%
2015	-11.1%	1.2%
2014	21.5%	13.5%
2013	70.5%	32.3%
2012	25.0%	16.0%
2011	-20.4%	1.9%
2010	-5.0%	15.1%
2009	46.0%	26.4%
2008	-6.9%	-36.8%
2007	-17.5%	5.1%
2006	14.3%	15.8%
2005	-14.0%	4.8%
2004	4.6%	10.7%
2003	40.3%	28.2%
2002	-12.2%	-21.6%
2001	3.3%	-11.8%
2000	-35.9%	-9.7%
1999	15.0%	20.4%
1998	28.7%	28.7%
1997	59.4%	33.5%
1996	31.1%	22.5%
1995	75.7%	38.0%
1994	-16.5%	0.4%
1993	14.1%	9.7%
1992	7.8%	7.6%
1991	44.1%	30.3%
1990	-22.7%	-3.2%
1989	52.0%	31.5%
1988	8.0%	16.4%
1987	31.5%	5.1%
1986	26.2%	18.6%
1985	55.2%	31.6%
1984	1.5%	6.2%
1983	31.9%	22.4%
1982	49.7%	21.6%
1981	-20.3%	-4.9%
1980	42.1%	32.4%
1979	14.2%	18.3%
1978	-9.7%	6.5%
1977	-15.7%	-7.2%
1976	32.1%	23.8%
1975	36.1%	37.1%
1974	8.0%	-26.5%
1973	-23.4%	-14.7%
1972	32.2%	18.9%
1971	18.5%	14.1%
1970	27.1%	3.9%
1969	-13.6%	-8.4%
1968	14.6%	10.9%
1967	35.6%	23.8%
1966	-11.3%	-10.1%
1965	9.6%	12.4%
1964	28.5%	16.4%
1963	42.6%	22.7%
1962	-3.3%	-8.8%
1961	54.4%	26.8%
1960*	-3.0%	0.4%

* Partial year.

The rules as implemented

This is the exact tree Tactfolio runs, rebalanced daily with signals and trades at the close. Open it to inspect or copy it.

Sources and caveats

SSO, a 2x daily-reset S&P 500 fund, stands in for the paper's 2x daily-leveraged S&P 500 total return with a 1% annual leverage cost; the fund's own fees and financing costs apply instead.
SPY stands in for the S&P 500 total return index that the 200-day average is taken on, and BIL for 3-month Treasury bills.
Signals and trades use each day's close.

Common questions#

What is the 2x Leverage Rotation Strategy?#

It is the two-times setting of Gayed and Bilello's Leverage Rotation Strategy: hold a 2x S&P 500 fund such as SSO while the S&P 500 is above its 200-day moving average, and Treasury bills while it is below.

Is 2x or 3x leverage better for the Leverage Rotation Strategy?#

In simulated history since 1960, three times leverage returned more but had a lower risk-adjusted return and a far deeper worst drawdown, 72% against 53%. The two-times version is the steadier of the two, though it can still lose around half.

Why not just hold SSO all the time?#

A leveraged fund held through bear markets and volatile stretches can lose most of its value and take many years to recover. The 200-day rule moves to Treasury bills during those periods, which is the point of the strategy.