XLK put/call ratio stays elevated as short sellers pull back

XLK has dropped another 5.5% this week to $185.44, deepening the pullback from October highs, and the interesting tension in the data is that short sellers are actually covering while options traders remain unusually defensive.

The short-covering story has continued from where last week's note left off. SI fell 4.8% on Tuesday alone, bringing it to 6.5% of the free float, roughly where it was after the sharp reversal documented in the previous note. Over the past month, short interest has declined nearly 12% from late-September peaks above 24 million shares. The borrow market confirms the easing: cost to borrow is a modest 0.53%, and availability has expanded to 558%, meaning there are more than five shares available for every one currently borrowed. The 52-week tightest point was 40.6% availability, so the current lending environment is about as relaxed as it gets for this ETF. Short sellers are not pressing new positions into the selloff.

Options positioning tells a different story. Put demand remains structurally elevated, with the put/call ratio at 1.99, just above its 20-day average of 1.95. That average itself has drifted higher over the past month, from the low-1.8s in September to nearly 2.0 now, meaning the baseline level of hedging has shifted upward even as the worst of the peak readings (above 2.12 on October 6) have faded. The ratio is only 0.32 standard deviations above the 20-day mean, so this is not a panic-level reading, but the persistent elevation signals that investors are paying more for downside protection in tech than they were a month ago. The 52-week low on the PCR was 1.34, underscoring how far the options market has moved toward caution this autumn.

The ORTEX short score has eased slightly to 40.5, down from a recent peak of 48.1 on October 7, when the defensive positioning was most acute. The score is mid-range and has been broadly stable for the past week, consistent with a market that has partially unwound its most bearish positioning without fully embracing a recovery. There is no analyst coverage to speak of for an ETF structure, and valuation multiples simply reflect the underlying basket, which is dominated by the largest US technology names.

What to watch is whether the put/call ratio normalises back toward September levels as the current earnings season for major tech holdings progresses, or whether it stays anchored near 2.0, suggesting that options traders see more downside risk even as short sellers step aside.