While the S&P and broader equity indices have bounced back, short interest in key ETFs like IWM, MDY, and VXX remains elevated. Despite stabilization in the VIX and recovery in prices, positioning reflects persistent risk aversion and a reluctance to unwind hedges.

The S&P has recovered but the short interest in the S&P continues to be high.

Like the rest of the market, the IWM (Russell 2000) and MDY (Midcap) sold off in April but have since recovered.

When the market sold off, short interest in the ETFs rose. However, it has not declined even though the market has recovered by 15%.

The graph shows short interest as a percentage of float, but the trend looks similar when measured in shares or notional terms—indicating that the change is not due to a shift in share count.

On the flip side is the VXX, an ETF that tracks the VIX.

The VIX and VXX spiked, as did short interest. While the VIX has since dropped back to the 15 level, the short interest remains elevated.

In fact, the short position in the VXX is at an all-time high, despite the VIX having stabilized and the forward VIX curve not indicating any significant increase.

In all three cases, short interest remains at crisis levels despite the broader market recovery.

Customers may be late in unwinding trades initially placed as hedges and could still be holding both sides of the trades. This is not a common pattern seen with ETFs.

Persistent high short interest in IWM, MDY, and VXX—despite a 15% market recovery—points to caution among institutional investors. With volatility measures stabilizing, the reluctance to unwind hedge-related short trades suggests either late positioning shifts or a broader sentiment divergence not yet reflected in price action.

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