IWM has posted a 6.4% gain this week, yet the bears have barely flinched — and the lending market is quietly tightening around them.
Short interest on the iShares Russell 2000 ETF remains deeply entrenched at 32.4% of free float, holding near the same level reported in the previous note from May 20. The one-week change is a negligible +0.65%, and the one-month change is actually down 5% — so the slow unwind from the late-April peak of roughly 101 million shares short is still technically in progress. But the pace has stalled. With the fund trading at $290.51 and short sellers sitting on a week where the index added over six points, the aggregate short book is under real mark-to-market pressure without any meaningful covering to show for it.
The borrow market has tightened sharply relative to where it was just seven days ago. Availability has dropped to 29.2% — meaning fewer than one share remains available for every three already on loan. That is a significant tightening from 41% on May 19 and 48% on May 20, and it marks a return toward the tighter end of the recent range. The 52-week low on availability was 0.98%, hit during the April squeeze when the fund was almost completely locked up. The current reading is not at those extremes, but the direction is clear: as the ETF rallies, new short supply is being consumed. Cost to borrow has risen 37% over the past week to 1.57% — still not punishing by absolute standards, but the trajectory marks the sharpest weekly move in borrow cost since late April.
Options positioning reinforces the defensive tone among hedgers. The put/call ratio has climbed to 2.80, nudging up against its 52-week high of 2.86 and running above its 20-day average of 2.72. The z-score of 1.29 is not extreme on its own, but the context matters: the PCR has been running structurally elevated for weeks, well above the year's low of 1.91 from earlier in the spring. That sustained demand for puts — even as the fund rallies — points to a market that is buying upside exposure with one hand and hedging it aggressively with the other. Defensive options positioning has not unwound alongside the price recovery.
On the institutional side, the top holders are dominated by broker-dealers and prime brokers rather than long-only asset managers — Bank of America at 10.6%, Morgan Stanley at 10.3%, and Goldman Sachs at 6.2% all added meaningfully in Q1 2026. Those flows likely reflect hedging and financing activity rather than directional conviction, consistent with a fund that functions as much as a short vehicle and hedge instrument as a long index position. The ORTEX short score has edged higher this week to 69.5 from 67.7 on May 15, a move worth watching given that it has trended steadily upward through May even as the price has recovered.
What to watch: the combination of stalling short covering, tightening availability, rising borrow costs, and a short score near its highest level of the month creates a setup where any continuation of the small-cap rally will test how long the remaining 93.9 million shares short can hold their ground.
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