Short interest across the S&P 500 has climbed alongside a sharp rise in volatility this year, which averages 50% higher year‑to‑date. This close relationship reflects momentum‑driven bets against wildly swinging “story” stocks, option hedges, and risk‑off flows. As volatility retreats, short positions historically diminish in tandem.

We wrote earlier about a statistical relationship between high volatile stocks and short interest.

We have updated that analysis for change in short interest and volatility YTD.

The graph shows the increase in average S&P short position YTD.

This increase in short position coincides with an increase in volatility. The average stock is 50% more volatile.

There are a few mechanisms that connect short interest and volatility.

The higher volatility names in this environment are probably down more so have more shorting in a momentum strategy.

The higher volatility names may have higher expected downside moves so shorts may be attractive to the shorts.

Higher volatility names may be story names or have more bad news.

The option short call is half of the short stock strategy, so they are correlated.

We can expect shorting to come down when volatility does.

Our updated analysis confirms that elevated volatility and short interest move hand‑in‑hand within the S&P 500. This synchronicity offers a timely signal of market stress and momentum shifts. Investors who monitor both can anticipate when short positions will unwind as volatility normalizes, enhancing risk management and trade timing.

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