XLV, the Health Care Select Sector SPDR ETF, has snapped back from last week's selloff — and this time, the short position is moving with it.
The reversal from last week is striking. Seven days ago this note flagged XLV falling 3.7% to $158.29 with shorts barely budging. The picture has changed on both sides. The ETF has recovered to $160.25, up 1.2% on the week and 7.3% over the past month. More notable: short interest has finally pulled back. From a peak near 14 million shares in mid-July, the short position has trimmed to roughly 13.6 million — a 3% weekly decline that represents the first meaningful unwind since the aggressive June build. That build had pushed SI from around 9.5 million shares in mid-June to its current level, a 42% month-over-month increase that still leaves shorts at 5.2% of free float. The unwind is real, but the position remains historically large for this ETF.
The borrow market tells a consistent story — conditions have eased considerably. Availability has expanded to 262%, meaning more than two shares are available to borrow for every one already lent out. That is a dramatic loosening from the tightest readings of the past year, when availability compressed below 25% at its most extreme. Borrowing costs reflect the same dynamic: cost to borrow sits near 0.47%, a third lower than it was a month ago. The combination of loosening availability and declining short interest points to a market where the short thesis has lost some urgency — bears are covering, and there is no squeeze pressure to force the trade.
Options positioning adds a note of caution to that otherwise constructive picture. The put/call ratio has climbed to 1.39, running above its 20-day average of 1.29 by about 1.5 standard deviations. That is not an extreme reading — the 52-week high reached 2.67 — but it does signal that options traders are buying more downside protection than usual even as the price recovers. The ORTEX short score has eased from its recent high of 53.2 on July 9 to 47.4 today, its lowest reading of the past two weeks, which corroborates the directional shift in sentiment. Taken together, positioning looks cautious rather than panicked: shorts are trimming, borrow is loosening, but the options market has not fully capitulated to the bullish tape.
Managed Account Advisors remains the largest institutional holder at 8.6% of shares, having added nearly 2.9 million shares in the most recent reporting period. JPMorgan and Morgan Stanley both trimmed modestly. The ownership base is broadly diversified across major broker-dealers and asset managers, with none showing dramatic repositioning as of the March quarter-end data.
The key tension to watch is whether the short unwind continues at pace or stalls near current levels. Shorts built 42% in a month and have so far given back only a fraction of that position. If healthcare's recent momentum — driven by FDA decisions and pharmaceutical earnings optimism — holds, the remaining 13.6 million short shares represent a meaningful pool of potential covering demand. The options market's sustained put bias is the counterweight worth monitoring.
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