XLV Short Covering Firms Up as Borrow Market Eases

XLV has now spent two weeks unwinding the short positioning that peaked in early October, and the data this week suggests the retreat is becoming more orderly rather than reversing again.

The covering trend that briefly stalled last week has resumed. Short interest fell 6.5% across the week to 6.2% of free float, now down more than 12% over the past month. At the late-September peak, nearly 19.6 million shares were short. That figure has dropped to 16.1 million. The intraweek spike flagged in the previous note, which briefly pushed SI back up before collapsing in a single session, has not been repeated. The pattern now reads as a steady, if slow, exit rather than tactical noise around a stable short base.

The borrow market reinforces that read. Cost to borrow has more than halved since early October, from above 1% to 0.55%, and borrow availability has moved in the same direction: it spent much of late September and early October below 25%, with a brief moment on October 1 when every share in the lending pool was lent out. It has since loosened dramatically, climbing to 76% of outstanding short interest. That is a large shift in a short time and means bears looking to put on new positions face far less friction than they did a month ago. Availability is still well below the 125% levels seen in late October, so the market is not fully loose, but the squeeze risk that characterised the September positioning has largely dissipated.

Options positioning remains the one data point that has not moved with the broader easing. The put/call ratio is 1.68, virtually unchanged over the past month and sitting just below its 20-day average of 1.69. The z-score of minus 0.37 means options positioning is running at about its recent norm, not spiking in either direction. For a sector ETF that has gained 10.7% over the past month, the absence of any meaningful call-buying is notable. Put protection has been persistently heavy on XLV for weeks, and the month's rally has not shaken that habit. The 52-week PCR range runs from 0.47 to 2.67, so current readings are closer to the defensive end than the bullish end of the full-year spectrum.

The ORTEX short score has drifted slightly higher over the week, from around 55 in late October to 56.8 now. The score peaked at 59 on October 26, the same day availability briefly tightened to 25% and short interest spiked before collapsing. The subsequent drop and partial recovery in the score mirrors what has happened in the underlying SI data: a brief bearish flare, then a retreat to a moderate positioning level that is neither extreme.

The stock itself has recovered 2.7% on the week to $184.02, and is up nearly 11% over the past month, tracking the broader healthcare sector rebound. The pace of short covering has tracked the price move closely: as XLV climbed, the short base shrank. What to watch now is whether the put/call ratio begins to come down in line with the eased borrow market, or whether options protection remains persistently high even as short interest continues to fall.