Options traders ramp up short positions on software company loan ETFs, reaching the highest scale since 2023.
As market concerns about the software industry's prospects have spread from the stock market to the credit market, traders are making record bearish bets by shorting ETFs holding large amounts of software company loans via put options.
Traders in the US equity options market are aggressively buying put options on the Invesco Senior Loan ETF (ticker BKLN).
This fund tracks the leveraged loan index, and the core logic behind it lies in its holdings structure—According to Haina International Group data, about 18% of the fund’s exposure is in loans made to software companies, including well-known firms such as McAfee and Proofpoint.
Over the past three weeks, bearish bets against the ETF have surged rapidly. Data shows that the total number of put option contracts has exceeded 400,000 (equivalent to 40 million shares), driving open interest in put options to its highest level since 2023.
Short bets hit a new low since April last year
Monday’s market trading details further confirm investors’ pessimistic expectations.
One investor bought 30,000 BKLN put options expiring in April with a strike price of $20. According to calculations, if the fund drops 3.5% and falls below the lowest level for April 2025, the trade will break even.
Right after came an even more aggressive bet: another 50,000 put options were traded, betting the ETF will see a similar decline by mid-July.
Outflows for four consecutive weeks
In addition to aggressive shorting in the options market, capital flows in the spot market are also extremely negative.
In the week ending Monday, BKLN fell about 1% to $20.44, hitting its lowest point since April 10 of last year (i.e., April 2025), when the market was beset by tariff turmoil.
More worrying is that the ETF has seen net outflows for four consecutive weeks, totaling nearly $1 billion.
Monday’s trading is likely to further push up overall bearish positions. Last week’s series of trades already showed that investors are frantically building defenses, hedging downside risk for the ETF by buying put options.
Data shows that one or more investors bought a total of 250,000 put options expiring in July at a $20 strike price last week. Earlier, in early February, they had already purchased 100,000 similar April expiration put options.
From “betting on a rebound” to “throwing in the towel”
The collapse in market sentiment is seen not only in shorting credit but also in abandoning bets on a rebound for software stocks.
Traders sold call options on the iShares Expanded Tech-Software ETF (IGV) expiring in March with a strike price of $92. This move closed out positions established about two weeks ago amid a wave of selling in software stocks.
This means investors no longer expect a short-term rebound in the software sector.
Regarding this complete exit, Haina International Group was blunt in their Friday analysis:
“With continued underperformance in the sector, investors are throwing in the towel.”
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