XLF has pulled back from last week's highs while short sellers have quietly added to an already painful position — and now the borrow market is beginning to register the strain.
Short interest has climbed further since last week's note. The short base hit 158 million shares by June 23, representing 16.1% of free float — up nearly 7% on the week and almost 47% over the past month. To put that in context: as recently as late May, short interest sat near 103 million shares. The accumulation has been relentless, and this week's step-up marks the largest the position has been in the 30-day window. Shorts have not blinked despite a month of adverse price action.
What has changed meaningfully this week is the lending market. Availability tightened sharply — falling 60% on the week to 215%, down from above 540% just a week ago. That reading is still technically in the "normal" zone, but the direction of travel is striking: this is the tightest the borrow pool has been since the May 14 window, when availability similarly compressed to around 236%. Cost to borrow has also drifted higher, up roughly 20% over the week to 0.61% — still cheap in absolute terms, but moving in a direction that matters when a position this large is being held against the trend. The 52-week peak utilization was 72.4%, and the current setup, while not at extremes, is tightening faster than at any point in the past month.
Options positioning has softened slightly but remains structurally bearish. The put/call ratio is running at 1.40, a touch below its 20-day mean of 1.47 — meaning hedging demand is just fractionally below its recent elevated average. The z-score of -0.62 confirms options are neither piling on nor retreating. Notably, the PCR has drifted down from the mid-1.6 range seen in late May, which suggested more acute defensiveness at that point. The current reading is consistent with cautious positioning rather than fresh fear. The 52-week range spans from 0.88 to 1.98, placing today's level in the upper half of that band — structurally bearish, but not at an extreme.
The ORTEX short score edged up to 66.0 from 57.1 a week ago, its highest reading in the 10-day history available. That reflects the combination of rising short interest and tightening availability — the model is picking up incremental pressure even if no single metric is flashing red. Institutional ownership data offers one notable datapoint: JPMorgan Chase added nearly 49 million shares in Q1, taking its stake to 14.6% of the fund. That buying from the largest holder comes against the grain of the short-side buildup, a tension that has been present throughout this episode and has not yet resolved.
The price has slipped back to $53.88 from last week's $54.35, a move of roughly 0.9% on the week. That is small in absolute terms, but it represents the first weekly loss in several weeks for a short book that has been underwater since late May. Whether that modest retreat encourages further short accumulation — or finally gives shorts enough relief to trim — is the question the availability trend will answer first.
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