Lots of interesting stuff, but you are reinventing the wheel. What you describe first is volatility drag (read up on it).
There is no significant mean reversion for ETFs . If it would be there, then it would be free money. Equity index ETFs track the index very closely.
A long short ETF strategy is analyzed in Euan Sinclair's Volatility Trading (Second Edition, Chapter 13).
Notation is the same as in Black-Scholes GMB model (S, S0, sigma, and t), and this is the result:
Basically, it is similar to a long straddle strategy.
Regardless, if you have an idea, then backtest it. Then, paper trade it or trade it with a small amount of money.
Also, in this game, you cannot use reference material from the 1990s. Most of the stuff from here:
http://www.godotfinance.com/workingpapers.xhtml
is already eliminated or the performance is reduced (I have backtested the volatility strats). Some strats were not good to begin with due to data snooping. The above link is good tho if you want an idea where to start.
EDIT:
There are backtested starts here too:
http://epchan.blogspot.com/