UFOX shorts retreat as AI ETF rallies hard

UFOX, the Defiance AI & Connective Tech ETF, has staged one of its sharpest month-long recoveries of the past year — and short sellers are pulling back fast.

The most striking number in the positioning data is the one-month price move. UFOX gained 24% in a single month, closing at $91.62 on May 12. The week ended with a 5.7% gain, even after a 2.6% pullback on Tuesday. That kind of upward momentum in an AI-themed ETF reflects the broader re-rating in tech sentiment — and it is directly driving the short retreat.

Short interest is low and falling. Estimated short shares dropped 33% over the past week, from roughly 92,000 to just under 62,000. That takes the SI % of free float to 0.6% — well below the threshold where short positioning is a meaningful narrative. The month-long picture is more nuanced: shorts actually doubled from early April lows of around 25,000 shares to a peak near 99,000 shares on May 1, then reversed sharply as the rally accelerated. That pattern — a short build into strength followed by a fast unwind — is consistent with ETF arbitrage activity rather than a conviction directional short. The borrow market reflects the same easing: cost to borrow dropped to 2.5%, down nearly 12% on the week, after touching a 30-day high near 3.5% in early May.

Availability in the lending pool has loosened as the short position shrinks. The lending utilization rate — how much of the available borrow is being used — fell to 63% on May 12, down from a near-term peak of 72.8% earlier in the week. That earlier peak was the highest of the past 52 weeks. The decline suggests shorts are returning shares rather than adding, which has freed up supply in the pool. For context, the utilization rate was only 15-20% in early April; the spike and subsequent retreat over the past six weeks closely mirrors the short position itself.

Options positioning is relaxed and bullishly skewed. The put/call ratio is 0.39, marginally above its 20-day average of 0.37, with a z-score of just 0.62 — nowhere near the levels that signal elevated hedging demand. Calls dominate the open interest structure by a wide margin. The 52-week high on the PCR was 2.56, which underscores just how far the current reading is from defensive extremes. Demand for downside protection is muted. That aligns with the broader tone: with a 24% monthly gain in the bag, there is little urgency to buy puts.

The ORTEX short score has drifted lower this week, landing at 48.5 on May 12, down from 51.1 a week ago. Scores in this mid-range carry no strong directional read — the decline simply reflects the unwinding short position rather than any fresh bearish signal. There are no analyst ratings or valuation multiples to consider, as UFOX is an ETF with no sell-side coverage or earnings calendar.

The next development worth watching is whether the short retreat continues at the same pace, or whether fresh shorts re-emerge if AI sector momentum fades — the rapid build-and-unwind cycle seen over the past six weeks suggests the short base in this ETF is highly responsive to price direction.