IWM Short Interest Hits 33% — Options Traders Aren't Buying It

Short sellers just made their biggest move yet on IWM. The iShares Russell 2000 ETF's short interest jumped 22% in a single day to 33% of the free float. Options traders are sending the opposite signal — the put/call ratio has dropped to its lowest level in two weeks.

Shorts Surge to Record High

The numbers are stark. Short interest reached 95.8 million shares on September 24. That is up from 78.6 million just two days prior.

The month-long picture is even more striking. Short interest has risen 27% since late August. Two weeks ago, this column noted that shorts were holding firm at 28% of float. They have since added another 5 percentage points.

FINRA's fortnightly data corroborates the move. The official settlement-date figure stands at 98.1 million shares short, with 4.52 days to cover. Unwinding this position would not be quick.

The ORTEX short score sits at 70.3. That is elevated, though it has actually eased slightly from a recent peak of 72.5 on September 21. The score reflects high but not accelerating bearish conviction.

Options Tell a Different Story

The put/call ratio has fallen to 2.19 — the lowest in two weeks and 2.4 standard deviations below its 20-day mean of 2.40. That is a statistically meaningful shift.

The direction is consistent. The PCR has fallen every session since September 16, when it stood at 2.51. Options traders are buying fewer puts relative to calls. Bears in the equity lending market and bears in the options market are diverging.

Note that even at 2.19, the PCR remains elevated in absolute terms. IWM's 52-week range runs from 1.92 to 3.03. This is a reduction in bearish hedging, not an outright bullish tilt.

Availability Has Swung Wildly

The borrow market has been volatile. Availability dropped to just 9.5% on September 21 — extremely tight. It has since bounced to 66.5%, with roughly 32.8 million shares available in the lending pool.

That loosening matters. Earlier this week the borrow pool was nearly exhausted. Now there is room for new short positions to be initiated without the extreme friction seen on Monday.

Cost to borrow has also normalised. After spiking to 2.48% on September 15, it has fallen back to 1.15% — close to the August baseline. The squeeze dynamics flagged in last week's note did not materialise.

Institutional Holders Trimming

The top holders have been reducing exposure. Morgan Stanley cut its position by 11.1 million shares as of June 30. Citigroup trimmed by 4.4 million shares over the same period. Bank of America reduced by 1.8 million. The main additions came from Wells Fargo (+2.3 million) and Healthcare of Ontario Pension Plan (+947,000).

Data Summary

• Short interest: 33.0% of free float (95.8M shares), up 22% in one day, up 27% over one month
• FINRA official: 98.1M shares short, 4.52 days to cover (as of Sept 15 settlement)
• Availability: 66.5% — loosened sharply from 9.5% on Sept 21
• Cost to borrow: 1.15%, down 44% week-on-week
• Put/call ratio: 2.19 — 2.4 standard deviations below 20-day mean; lowest in two weeks
• PCR 52-week range: 1.92–3.03
• ORTEX short score: 70.3
• IWM price: $281.66, down 5.5% over one month

The divergence between record short positioning and easing options bearishness is the signal to watch.