A strange divergence is playing out in VIS — the Vanguard Industrials ETF — where the cost to borrow has nearly doubled in a week even as short sellers quietly exit.
Cost to borrow hit 6.33% on July 8. That's up 129% over seven days, from roughly 2.77% at the start of July. Meanwhile, short interest fell 16% over the same period to just 1.38% of free float. Fewer shares are being shorted — yet the borrow market is getting more expensive.
The lending data explains the paradox. Availability sits at 40% — tight, but noticeably looser than earlier this week. As recently as July 1, availability was at 15%. The lending pool appears to have expanded modestly, but not enough to bring costs back down.
Every share currently available to lend is already out on loan. The borrow market has run at full capacity for much of the past six weeks. That structural tightness keeps the cost to borrow elevated even as the gross number of shorted shares declines.
The 52-week availability low hit 3.7% on May 29. At that point, the borrow market was essentially locked. Today's 40% reading is a partial recovery from those extremes — but it remains firmly in tight territory.
The options market adds another wrinkle. VIS's put-call ratio dropped to 0.97 on July 8 — well below its 20-day mean of 1.28 and carrying a z-score of -1.8. That means call activity has picked up sharply relative to recent norms. Traders who historically leaned bearish on industrials via options are now tilting toward calls.
That shift aligns with the retreat in short interest. The broad short thesis on the sector appears to be easing.
The tension is simple: the cost to borrow remains elevated for a fund with just 1.38% of float short. If short sellers continue to cover, availability should loosen further and costs should follow lower. If new shorts are established despite the high borrow cost, it would signal strong conviction in a bearish view on industrials at current levels.
See the live data behind this article on ORTEX.
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