Here’s how the inefficiency works. Every day, leveraged ETFs have to trade to maintain a constant level of leverage. The transaction costs of trading every day is very high since they often trade illiquid derivatives or swaps. It’s not like they trade liquid products such as S&P 500 futures. In a year with high volatility, a leveraged ETF could lose 20% of its net asset value to transaction costs.
One way to play this inefficiency is to short both the bull and bear versions of a leveraged ETF. If you want, you could also rebalance the ETFs frequently so that you have no risk from a trending market. (In a trending market, one ETF might go up several times while the other goes down close to 0.) Unfortunately, many people seem to have caught on to this trade as leveraged ETFs frequently have borrow costs in the mid single digits.
I personally do not recommend this arbitrage trade… the risk/reward does not seem compelling to me considering the borrow costs.