XLB Shorts Hold Position as Borrow Loosens

XLB presents a changed picture from last week: the borrow squeeze that drove the previous note has partially reversed, yet short interest remains near its highest level in months and the ETF keeps grinding higher.

The borrow market is the clearest shift. Last week's note flagged availability collapsing to 31.9% as the defining pressure point. That tightness has since eased materially. Availability has recovered to 90.2%, up 183% over the past week, meaning there is now roughly one share available for every share already borrowed. Cost to borrow has fallen to 0.54%, down 12% on the week and back toward the lower end of its September-to-October range. The 52-week low availability reading was 3.9%, and the previous distress episode in mid-September saw availability hit 11.7%. The current reading is nowhere near that stress level.

Short interest, however, has not retreated with the borrow market. Positions total 15.9 million shares, equal to 27.6% of free float, essentially flat with last week's 27.9% reading and still roughly 12% above the level from one month ago. The ORTEX short score sits at 62.1, little changed from 63.4 last week and well above the 57.3 reading from October 14. Shorts are not covering despite a borrow environment that has become considerably easier. The ETF itself rose 1.1% over the week to close at $51.78, adding 4% over the past month. Bears are holding a losing position against a rising tape, which makes the stability of short interest a more pointed data point than its absolute level.

Options positioning has also shifted relative to early October. The put/call ratio has dropped to 0.88, below its 20-day average of 1.02. That puts the PCR roughly half a standard deviation below the mean, a mild lean toward calls rather than the pronounced defensive skew seen when the ratio was running above 1.6 in late September and early October. The contrast matters: even as short sellers maintain elevated positions, options traders have rotated away from the downside hedges they favoured a month ago. The two signals are no longer telling the same story.

On ownership, the top holder list shows a mix of wirehouse and wealth-platform names, with Wells Fargo and Morgan Stanley each holding just under 6% as of June 30. Several mid-tier holders added meaningful size in the most recent period: Envestnet added 4.3 million shares, Managed Account Advisors added 3.3 million, and Raymond James added 2.7 million. These are distribution-channel flows rather than conviction bets, consistent with an ETF that attracts tactical sector allocation rather than concentrated ownership.

What to watch is whether short interest begins to decline from its elevated 27% to 28% range now that availability has loosened, or whether bears use the easier borrow conditions to add fresh positions rather than exit.