I am not sure what you are really asking. There are leveraged ETFs out there- UPRO for example, is a 3x leveraged ETF for the SP500, but plenty of 2x ones exist as well. If you have the risk tolerance, you can just ride out the ups and downs, you will more than likely come out ahead in the long run. It will take a lot of guts though to ride out the storm.

If you are looking for ways to reduce your downside risk, I am not sure there is a fool-proof way to do so. However, you could move out of leveraged products into unleveraged products if say P/E ratios exceed a threshold. Volatility is not very predictive IMHO for a downturn- downturns cause the volatility- when things are volatile, the market is already moving down.

If you aren't going to use ETFs to leverage, make sure to model your margin loan rates into your returns.

Leveraged ETFs are dangerous. Please read https://www.bogleheads.org/forum/viewtopic.php?t=154251, for example.

But if you would like to invest into an ordinary S&P 500 ETF with some additional protection against downturns, you may want to consider something like the attached simple algo (no guarantees, of course).

Thank you very much for the replies. @Tim - Where did this strategy come from? Does it have a name and is there documentation describing the logic behind the Algo?

I agree the decay of leveraged ETFs is too unfavorable to include in a long-term strategy. I am just looking for a safety net on an ordinary S&P 500 ETF. If I felt comfortable enough with the safety net in place, I'd want to leverage the ETF position with a margin loan. My investment horizon is years and I'm looking for long-term growth.

If you believe in the CAPM, the only way to get higher returns is to accept higher risks. Since an SP500 ETF serves as a proxy for the highest return/risk, then the only way to make more money is to accept higher risks (i.e. bigger drawdowns). If your horizon is far, then increasing your leverage will almost surely increase your rewards. You can try applying a risk on/risk off logic but an efficient market will prevent you from making more money via less risk. I would not recommend playing with your retirement money and instead to stick it into an index fund (with a glide path).

Minh NGO
Quite agree. Well said on all that. Although in back testing it seems possible to get market returns with less than market risk by using a timing mechanism to get on an out.

The mechanism won't always work. Especially on a single index. But in back testing seems to indicate a good route.

@Austin,

The algorithm has been around on the Quantopian site in one form or another for a long time, but it probably has no particular name or reference, although I may be wrong on this one. It uses a filter or an exit strategy, as it is sometimes called, to get out of the market and into bonds when the market as a whole tumbles. The particular form of the filter varies, but it generally checks for an upward or downward trend in the market index (or its ETF).
The version I am partial to compares a ten-day moving average of the index (ETf) value with the one-hundred-day one.

@Austin,

I should perhaps also mention that this particular algo employs an equally-weighted version of the SP 500 index, rather the market-cap weighted one. I am almost sure that this presents an advantage in the long run.

Agree on equal weighting but difficult for institutional size. Even maybe on the S& P 500