Options traders increase short positions on software company loan ETFs, reaching the highest scale in 2023

As concerns about the software industry’s outlook spread from the stock market to the credit market, traders are betting heavily through record-breaking put options, massively shorting ETFs that hold large amounts of software company loans.

Traders in the US options market are heavily buying put options on the Invesco Preferred Loan ETF (ticker BKLN).

This fund tracks a leveraged loan index, and the core logic behind it lies in its holdings structure—according to Hainan 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 open interest in puts to its highest level since 2023.

Short interest index hits new low since April last year

Market trading details on Monday further confirm investors’ pessimistic outlook.

An investor bought 30,000 put options on BKLN, expiring in April, with a strike price of $20. Based on calculations, if the fund drops by 3.5%—falling below the lowest level in April 2025—this trade would break even.

Following that, there was an even more aggressive bet: another 50,000 put options traded, betting that the ETF would decline by a similar magnitude before mid-July.

Funds have been fleeing for four consecutive weeks

In addition to aggressive shorting in the options market, cash flows in the spot market are also extremely bleak.

During the week ending Monday, BKLN fell about 1% to $20.44, hitting its lowest point since April 10, 2025, when markets were troubled by tariff turbulence.

Even more concerning, the ETF has experienced outflows for four consecutive weeks, totaling nearly $1 billion.

Monday’s trading is likely to further boost overall put holdings. A series of trades last week already indicated that investors are frantically building hedges by purchasing puts to protect against declines in this ETF.

Data shows that one or more investors bought a total of 250,000 July-expiring $20 puts last week, after having already bought 100,000 April-expiring puts at the same strike in early February.

From “hoping for a rebound” to “giving up and surrendering”

The market sentiment collapse is not only reflected in credit shorting but also in abandoning bets on a rebound in software stocks.

Traders sold call options on the iShares Expanded Tech Software Sector ETF (IGV), expiring in March with a strike price of $92. This move unwound positions established during the sharp sell-off in software companies about two weeks ago.

This indicates that investors no longer believe the software sector will rebound in the short term.

Regarding this liquidation, Hainan International Group bluntly pointed out in its Friday analysis:

“As the sector continues to underperform, investors are throwing in the towel.”

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