XAR, the SPDR S&P Aerospace and Defense ETF, heads into the final quarter of 2026 under quiet but persistent selling pressure, with short positions growing steadily and the options market tilted heavily toward protection.
The most striking development in the lending market is the trajectory of borrow costs. Cost to borrow has nearly doubled over the past month, reaching 2.68% from around 1.53% at end-August. That move coincides with a 43% rise in shares short over the same period, bringing short interest to 1.66% of the float. For an ETF, that is a meaningful accumulation. Availability has loosened from its tightest point in the cycle: in early to mid-September, the borrow pool was almost fully exhausted, with availability falling as low as 3.1%, the 52-week floor. Since then it has eased back to 60%, giving new shorts more room to establish positions. The direction of short interest remains upward despite that relative loosening, which points to active demand rather than a mechanical unwind.
Options positioning reinforces the cautious tone. Put volume is running well above call volume, with the put/call ratio at 4.32, above its 20-day average of 3.35 and a full standard deviation above the norm. That is not a panic reading, the 52-week high hit 6.58 in late September, but the sustained elevation of the ratio throughout September suggests investors are paying for downside protection rather than buying the dip. The ratio spiked to its annual peak on September 24, the same session in which short interest was also climbing, a rare alignment of both bearish signals.
The price backdrop gives that positioning a clear context. XAR is down 11% over the past month to $233.16, with a 3.5% drop on the week. The ORTEX short score is mid-table at 48.7, roughly neutral, suggesting the setup is cautious rather than extreme. There are no individual company earnings to anchor the next move: the ETF holds a basket of aerospace and defense contractors and pays a quarterly dividend, with the most recent distribution of $0.13 per share paid on September 21.
The note published on this ETF as recently as September 25 pointed to sustained government procurement and modernization programs as the underlying support for the sector. That structural backdrop has not changed, but the market is clearly pricing in some near-term uncertainty, whether from budget negotiations, macro headwinds, or simply the lag between contract awards and revenue recognition. With availability now at 60% and borrow costs still elevated, the state of the lending market heading into Q4 earnings season for the major defense primes is the key variable to track.
See the live data behind this article on ORTEX.
Open XAR on ORTEX →ORTEX Market Intelligence content is generated by AI from a snapshot of ORTEX's proprietary data. Content is informational only and does not constitute investment advice.
