Our Black App and Blacklight SaaS Platform follows almost three thousand domestically traded ETFs with short interest activity with a total short interest of $168.2 billion. The Average Short Interest % Float of these securities is 25.37% with an average stock borrow fee of 0.63%. While over the last 30 days we have seen a total of $18.01 billion in short covering, recently we have seen short sellers increasing their short ETF positions with $1.39 billion of new short selling.
Domestic ETFs with largest Short Interest (minimum $25 million short interest):
SI % of Float is not as useful a metric as it is for equities because the denominator (Float) changes on a daily basis due to active ETF creations and redemptions. A high ETF SI % Float can be an indication of higher stock borrow rates and potential lack of availability, but if long ETFs are custodied in margined or rehypothecatable brokerage accounts the ability to re-lend shares can expand stock loan availability and keep rates from getting higher.
Domestic ETFs with largest Short Interest % of Float (minimum $25 million short interests):
ETF stock borrow fees are affected by short side demand and lendable share availability. The JETS ETF is the most expensive ETF to borrow (of all ETFs with $25 million of short interest) as short selling demand in the airline sector has been strong since the Covid 19 pandemic virtually shut down air travel. Along with the increased short selling demand there are a limited amount of JET shares available in lending programs and marigned\rehypothicatable brokerage accounts.
Domestic ETFs with highest Stock Borrow Fees (minimum $25 million short interest):
ETF short selling activity can be very volatile as shares are shorted for both hedging and Alpha generation. As the overall market ebbs and flows, portfolio managers delta hedge their positions to reflect the new amount of risk or notional they need to hedge. The primary ETF hedging vehicles are the Spider S&P 500 ETF (SPY US), the Invesco QQQ Nasdaq Trust ETF and the iShares Russell 2000 ETF (IWM US).
Looking at bearishness conviction on the short side can provide insight into market trends of the stocks that are being shorted. By breaking up last month’s short selling and covering activity between trading activity during first three weeks (April 13th to May 4th) of the time period versus the last week (May 5th to May 11th) we can see if the outlook, hedging and Alpha potential, has changed.
Short side bearishness in the following ETFs has not waned, shorts were active for three weeks and continued to sell short last week. Shorts were looking to hedge the broader market by using the IWM ETF throughout the entire month, accelerating from $265 million of short sales over the first three weeks and then ramping up to short $309 million over the last week. The energy sector continues to be a popular short with the Spider Energy Select Sector ETF (XLE US) seeing $185 million of short selling for three weeks followed by another $80 million over the last week.
Domestic ETF Short Activity: 3 Week Shorting > 1 Week Shorting (minimum $25 million short interest):
We’ve seen a reversal of bearishness in the following ETFs, short selling for three weeks followed by one week of short covering. Hedger using the Spider DJIA ETF have covered some of their positions, looking to hedge via the broader market ETFs like the SPY, QQQ and IWM. Shorts who were shorting the Spider Industrial Select Sector ETF (XLI US) and Spider Consumer Staples Select Sector ETF (XLP US) are now beginning to cover some of their exposure.
Domestic ETF Short Activity: 3 Week Shorting > 1 Week Covering (minimum $25 million short interest):
A reversal of bearishness is evident in the short covering activity in some of the larger fixed income ETFs. We saw continued short covering in the iShares iBoxx $ High Yield Corporate Bond ETF (HYG US), iShares Core U.S. Aggregate Bond ETF (AGG US) and iShares 20+ Year Treasury Bond ETF (TLT US) with $3.8 billion of short covering for three weeks followed up with $975 million of short covering over the last week. Gold short sellers continue to cover their exposure with $565 million worth of short covering over the last four weeks, a 30% decrease in short interest.
Domestic ETF Short Activity: 3 Week Covering > 1 Week Covering (minimum $25 million short interest):
Shorts who were trimming their short exposure but are now more bearish can be seen in several of the largest domestic ETFs shorts. We saw over $1 billion of short covering in the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD US) for three weeks but now see short sellers active in the ETF once again, increasing short exposure by $293 million over the last week. Hedging in the broader Spider S&P 500 ETF (SPY US) and Invesco QQQ Nasdaq Trust has returned after seeing $9.5 billion of short covering over the first three weeks of our analysis with $778 million worth of new short selling over the last week.
Domestic ETF Short Activity: 3 Week Covering > 1 Week Shorting (minimum $25 million short interest):
Looking at short selling trends over time provides insight into overall market sentiment as well as the strength of bearish conviction in individual equities. Our Blacklight SaaS platform and Black APP provides an up to date view of short selling and short covering on an equity, sector, index or country-wide basis allowing investors\traders to better manage their existing long and short positions as well as generate new trade ideas.
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Managing Director Predictive Analytics, S3 Partners, LLC
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