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XLC, the Communication Services Select Sector SPDR ETF, enters the second week of October with short sellers rebuilding positions at the fastest pace in months, even as the fund itself posts a solid weekly gain.
The positioning story is the standout this week. Short interest jumped 70% over the past seven days, from roughly 4.8 million shares to just over 8 million, pushing the short interest as a percentage of free float to 3.6%. That is not an extreme level in absolute terms, but the speed of the rebuild is notable. The history shows shorts had been steadily unwinding through September, falling from above 8.4 million shares in early September to a low of around 4.8 million by late September. The reversal since then has been abrupt. Cost to borrow has more than doubled over the past month, now running at 1.13%, its highest level since the brief spike to nearly 2% in late September. Meanwhile, availability has tightened sharply. The ratio of shares available to borrow relative to shares already borrowed has dropped from above 500% in late September to just over 100% now, a move that points to significantly more demand for borrows in a short period. The lending market has gone from wide open to noticeably tighter in roughly ten trading days.
Options positioning tells a different and somewhat contrasting story. Puts still outweigh calls, with the put/call ratio at 1.52, but that is actually well below the 20-day average of 3.1. The z-score is negative, meaning options traders are running considerably less defensively positioned than they have been on average. This is a notable divergence: short sellers are rebuilding exposure aggressively, while options traders appear to have recently unwound much of their downside hedging. The PCR reached as high as 12.05 over the past year, and the current reading is near the low end of its range. Something shifted in options sentiment around late September, roughly when shorts also bottomed, but the two markets are pointing in opposite directions about conviction.
The ORTEX short score has climbed to 51 from 36 just two weeks ago, crossing the midpoint for the first time since early in that window. That move corresponds directly with the short interest rebuild and the tightening borrow market, and it reinforces the idea that the shift in positioning is broad-based rather than idiosyncratic. Valuation context for an ETF is limited, but the underlying basket trades on a trailing PE of roughly 19, with the multiple up about 0.6 points over the past 30 days, a mild re-rating higher even as the fund has shed about 0.3% over the same month.
The price action itself adds one more layer of tension. XLC closed at $111.65 on Tuesday, up 0.16% on the week and recovering modestly after a month that saw the fund give back roughly a third of a percent. The one-day gain of 0.04% is negligible, but the stock has stopped falling. That combination, a fund that has steadied while short interest surges, is the central tension heading into next week.
What to watch is whether the short interest rebuild continues at this pace, and whether the tightening availability in the borrow market prompts any shift in the options positioning that has recently moved to its most bullish stance in months.
See the live data behind this article on ORTEX.
Open XLC on ORTEX →ORTEX Market Intelligence content is generated by AI from a snapshot of ORTEX's proprietary data and reviewed by the ORTEX team. Content is informational only and does not constitute investment advice.
