The short exit that began two weeks ago on XLU has continued at pace, with the lending market now the loosest it has been all summer and options traders pulling back their defensive positioning.
Short interest dropped another 12.6% over the past week, bringing the position to 25.8 million shares — 10.4% of free float. That follows the 10.3% weekly decline flagged in the previous note. The cumulative unwind from the early-August peak of roughly 29.7 million shares now amounts to approximately 13% of the entire position. The one-month change has flipped: it now reads -2.8%, erasing what had been a meaningful net build through July. The direction has been consistent and unambiguous — shorts that accumulated through the summer slide are exiting, not adding.
The borrow market is the clearest confirmation of that exit. Availability has exploded to 978% — nearly ten shares available to borrow for every one currently lent out. That compares to 524% just last Thursday and 238% the week before. Three sessions ago the 52-week low in availability was 5.4%; the ETF is now at the opposite extreme. Borrowing costs have softened too, running near 0.38%, down from the 0.44–0.46% range that held through most of July and early August. The lending market is offering virtually no friction to new short positions — and yet shorts keep leaving.
Options positioning has moved in the same direction, though the read is slightly more nuanced. The put/call ratio has eased to 2.10, below its 20-day average of 2.27, and roughly 1.1 standard deviations below that mean. For context, a PCR above 2.0 still reflects a market that structurally leans on puts for this ETF — utilities options traders habitually hedge more than they speculate — but the direction of travel is toward less defensiveness, not more. The PCR has fallen steadily from above 2.6 in early August. That's consistent with a market that was braced for more downside and is now partially unwinding that caution.
The ORTEX short score has moved sharply lower to reinforce the picture. It now reads 38.7, down from 49.6 on August 11 — a ten-point drop in eight sessions. A falling short score reflects the combined weight of declining short interest, easing borrow costs, and loosening availability. All three legs are pulling in the same direction. The stock itself added 0.9% on the week to close near $44.02, recovering ground after a 2.5% pullback over the prior month. Institutional data shows JPMorgan and LPL trimmed positions as of June 30, while BNP Paribas and Bank of America were net buyers over the same period — a mixed picture that doesn't change the near-term positioning story.
What matters now is whether the pace of covering moderates or continues into the end of August — the speed of the unwind over the past two weeks has been sharper than the accumulation phase that preceded it, and the key question is where short interest settles once the tactical exit runs its course.
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