We are tracking over two thousand ETFâ€™s with $167 billion of Short Interest in the domestic ETF market. Overall, we saw a -$626 billion of incremental net short covering in December as short sellers increased their short exposure on 49% and decreased their exposure on 44% of the 2,162 domestic ETFâ€™s that we cover (7% had no change in shares shorted).
We are tracking over two thousand ETFâ€™s with $156 billion of Short Interest in the domestic ETF market. Overall, we saw a +$10.17 billion increase of incremental net short selling in November as short sellers increased their short exposure on 51% and decreased their exposure on 41% of the 2,077 domestic ETFâ€™s that we cover (8% had no change in shares shorted).
We track almost 2,200 domestic ETFs with total short interest of $159 billion. The top five most shorted ETFâ€™s in the U.S. market did not change over the last week, but overall ETF short selling increased by just over $4.77 billion. ETF short sellers continue to make fixed income ETFâ€™s a popular short for both hedging and outright trading purposes as five out of the top twenty ETF shorts are fixed income ETFs. On average, the borrow cost for shorting ETFs is slightly above General Collateral levels at 0.57% fee and shorts are paying $76.3 million in stock borrow costs monthly to finance their shorts.
There are 52 domestic stocks with a stock borrow cost greater than 10% fee and total short interest greater than $25 million. These are stocks which have a greater chance of a short squeeze if stock loan supply gets tight; stock borrow rates negatively impact net of financing expected Alpha; mark-to-market losses mount if the security rallies; or recalls start hitting the street. Using the Screening Tool in the S3 App, you can access this data on a daily basis on your own.
There are 43 domestic stocks with Short Interest % of Float greater than 40% and total short interest greater than $25 million. These are stocks which have a greater chance of a short squeeze if stock loan supply gets tight; stock borrow rates negatively impact net of financing expected Alpha; mark-to-market losses mount if the security rallies; or recalls start hitting the street. The Offer Rate is the market stock borrow rate for the security and the Last Rate is todayâ€™s stock borrow rate for the security. The higher the Offer Rate the less stock borrow supply there is on the street while a higher Last Rate indicates that supply is diminishing quickly and rates on existing short positions will increase. Using the Screening Tool in the S3 App, you can access this data on a daily basis on your own.
With interest rates and worldwide markets surprisingly volatile during the supposed summer doldrums, ETF short side activity has been volatile as well.
SPY, IWM and QQQ remain the top three most shorted ETFs, as they have been for years, but there have been some changes in the rest of the constituents. There are five Bond ETF presently in the top 20, but since January the Spider Bloomberg Barclays High Yield Bond ETF (JNK) had 11.0 million shares ($1.19 billion) in short covering and now has $1.28 billion in total short interest. Even though there is one less fixed income ETF in the Top 20, short interest of the five that remain is $857 million larger than the six in Januaryâ€™s Top 20. Two other ETFs that are missing since January, the iPath S&P 500 VIX ST Futures ETF (VXX) and the Spider S&P Regional bank ETF (KRE). Replacing these three ETFs are the Spider DJIA ETF (DIA), the Vanguard Real Estate ETF (VNQ) and the iShares U.S. Real Estate ETF (IYR).
With the Chicago Board Options Exchange Volatility Index, better known as the VIX Index, nearing year-to-date highs we would expect short selling in VIX related ETFâ€™s and ETNâ€™s to not only be active, but also trend significantly upwards as traders and portfolio managers sell volatility. While we are seeing a slight bump up of VXX ETF short selling over the last several days, we are not seeing the increase in short selling in the remaining eight actively shorted VIX ETFâ€™s\ETNâ€™s that we observed at the start of both 2018 vol spikes.
Barclayâ€™s iPath S&P 500 VIX Short Term ETN (VXX) and iPath S&P 500 VIX Medium Term ETN (VXZ) are scheduled to mature after a volatile 10 year run with a final redemption date of January 30, 2019. ETNâ€™s differ from ETFs as they are basically debt instruments with set maturity dates when the instrument expires and its â€śprincipalâ€ť or NAV is redistributed back to the long note holders versus an ETF which is a portfolio of assets with no defined maturity date.
With the S&P 500 index down 8.76% in October we would expect the CBOE Volatility Index (VIX) to increase dramatically, and it didnâ€™t disappoint, rising 75.17%.
Trading in the â€śFear Index,â€ť which measures the implied volatility of near term S&P 500 option premiums, can be done via futures, options or ETPs. The most popular VIX ETP being the iPath S&P 500 VIX Short Term Futures ETN (VXX) with a market cap of $929 million and short interest of $1.62 billion.
As markets and sectors declined, the use of ETFs as hedges increased substantially in October with ETF short interest increasing by $11.7 billion, to $176.5 billion, a 7.1% increase in size. There is a large concentration of short interest in a handful of ETFs, with the top twenty-five most shorted ETFs making up 75% of total short interest or $131.8 billion. Total short interest in these top twenty-five ETFs grew by $12.1 billion over the last month.