SPY: Bears Retreat as Short Interest Snaps Back From Its Peak

The most notable shift in SPY this week is not what bears have been doing, but what they have stopped doing.

Short interest has pulled back materially after weeks of steady accumulation. Borrowed shares dropped to 93.6 million, down 7.4% on the week, which is the sharpest weekly retreat since the September-to-October build began. That build added roughly 20 million shares in under a month, pushing the short position above 100 million shares and above 9.8% of the free float. The reversal puts the short figure back to 9.1% of float, still elevated by the standards of the past two months, but clearly off its recent peak. The ORTEX short score has moved in lockstep, falling from 51.4 on October 20 to 46.2 now, unwinding most of the bearish pressure that had accumulated over the prior fortnight.

The borrow market reinforces that picture of retreating conviction. Availability has surged to 1,086%, more than double last week's level, meaning shares to borrow are plentiful relative to the current short position. The 52-week low in availability was 34.2%, reached at the tightest point of the year, so the current reading is far from any squeeze territory. Borrowing costs have also eased, falling 20% on the week to 0.28%. That is a low and falling rate for the world's most liquid equity vehicle, and it tells the same story: no stress in the lending market, no squeeze dynamic, shorts covering without friction.

Options positioning, meanwhile, has settled into an unusually narrow band. The put/call ratio is 1.84, marginally below its 20-day average of 1.87, and the z-score of minus 0.64 indicates the reading is about two-thirds of a standard deviation below its recent mean. The 52-week range runs from 1.27 to 2.33, so the current level is broadly in the middle, neither especially defensive nor suggesting any notable shift toward calls. The compression is notable: daily PCR readings have barely moved for two weeks, clustering between 1.80 and 1.87. That flatness may reflect the macro backdrop, a market absorbing multiple large inputs simultaneously without reaching a clear directional view.

The price recovery adds a further layer of complexity to the bearish retreat. SPY closed at $769.66, up 0.6% on the day and roughly flat on the week. The one-month decline is now just 0.2%, having been as wide as 1.7% when last week's report was filed. So the ETF has recouped most of its October losses even as a large short position was being built. The recent note flagged geopolitical catalysts, an Iran risk flare-up and oil near $117, as risks the market was absorbing with surprising calm. That description remains accurate: the market has absorbed them, and short sellers appear to be drawing the same conclusion.

The holder list adds context on who is positioned in size. JPMorgan Chase holds 47.2 million shares, the largest single disclosed position, having added 1.8 million in the most recent quarter. Jane Street, a market maker, added a striking 24 million shares to reach 44.3 million, though for a firm of its profile SPY holdings typically reflect hedging and arbitrage activity rather than directional conviction. Morgan Stanley and Goldman Sachs both trimmed in the latest period. D.E. Shaw nearly doubled its stake, adding 13.3 million shares to reach 14 million, which for a quantitative fund of that style is worth noting alongside the broader short-interest retreat.

What to watch from here is whether the short position continues to unwind or stabilises around the 9% level: a further meaningful drop would represent an outright reversal of the October build, while a consolidation would leave the market still carrying more downside protection than it did a month ago.