Options traders increase short positions in software company loan ETFs, reaching a new high for 2023
Due to an 18% exposure to software industry loans, the Invesco Senior Loan ETF has faced aggressive short selling, with put option contracts soaring to 400,000, and open interest reaching a new high for 2023. Meanwhile, the fund has seen nearly $1 billion in outflows over four consecutive weeks, with investors significantly closing out call options on software sector ETFs. In the face of the ongoing sluggish performance of the sector, market funds have chosen to "give up and surrender."
As concerns about the software industry's prospects spread from the stock market to the credit market, traders are making record bearish bets by heavily shorting ETFs that hold significant loans to software companies through put options.
Traders in the U.S. options market are aggressively buying put options for the Invesco Senior Loan ETF (ticker BKLN).
This fund tracks a leveraged loan index, and the core logic behind it lies in its holding structure—according to Haina International Group, approximately 18% of the fund's exposure is to loans to software companies, including well-known software vendors like McAfee and Proofpoint.
In the past three weeks, bearish bets against this ETF have surged dramatically. Data shows that the total number of put option contracts has exceeded 400,000 (equivalent to 40 million shares), pushing the open interest in put options to its highest level since 2023.
Short Selling Index Hits Lowest Level Since April Last Year
Details of Monday's market trading further confirm investors' pessimistic expectations.
An investor bought 30,000 put options for BKLN with an expiration in April and a strike price of $20. According to calculations, if the fund drops by 3.5% and falls below the lowest level in April 2025, this trade would break even.
Following this, there were more aggressive bets: another 50,000 put options were traded, betting that the ETF will experience a similar decline before mid-July.
Funds Have Exited for Four Consecutive Weeks
In addition to the aggressive shorting in the options market, the cash flow in the spot market is also extremely bleak.
As of the week ending Monday, BKLN fell about 1% to $20.44, marking its lowest point since April 10 of last year (April 2025), when the market was troubled by tariff turmoil.
Even more concerning is that the ETF has faced outflows for four consecutive weeks, with a total outflow nearing $1 billion.
Monday's trading is likely to further increase the overall bearish positions. A series of trades last week already showed that investors are frantically building defenses by purchasing put options to hedge against the ETF's downside risk.
Data indicates that one or more investors bought a total of 250,000 put options with a $20 strike price expiring in July, while previously, in early February, they had already purchased 100,000 put options with the same strike price expiring in April.
From "Betting on a Rebound" to "Throwing in the Towel"
The collapse of market sentiment is not only reflected in shorting credit but also in abandoning bets on a rebound in software stocks.
Traders sold call options for the iShares Expanded Tech Software Sector ETF (IGV) with a strike price of $92 expiring in March. This action closed out positions established about two weeks ago during a sharp sell-off in software companies.
This means that investors no longer believe the software sector will rebound in the short term.
Regarding this liquidation behavior, Haina International Group bluntly pointed out in its analysis on Friday:
"As the sector continues to perform poorly, investors are throwing in the towel."
