Quite a good article can be found here: http://seekingalpha.com/article/3140956-investing-in-leveraged-etfs-theory-and-practice
Just selling a pair of leveraged ETFs to harvest the "volatility decay" is comparable to a short straddle... highly skewed and therefore quite dangerous (from the article):
There are no free lunches in the market. The apparent high performance
of strategies that engage systematically in shorting leveraged ETFs is
an illusion, based on a failure to quantify the full costs of
The payoff from a short leveraged ETF pair strategy will be comparable
to that of a short straddle position, with positive decay (Theta) and
negative Gamma (exposure to market moves). Such a strategy will
produce positive returns most of the time, punctuated by very large
The short Gamma exposure can be mitigated by continuously rebalancing
the portfolio to maintain dollar neutrality. However, this will entail
repeatedly buying ETFs as they trade up and selling them as they
decline in value. The transaction costs and trading losses involved in
continually buying high and selling low will eat up most, if not all,
of the value of the decay in the ETF legs.
Concerning your idea of arbitrage the article gives some ideas on "relative value arbitrage" but although the author claims to be successful with it he gives no details, adding: "If that sounds rather complicated, I'm afraid it is", probably to attract some potential customers (but that is speculation).