As concerns over the software industry's outlook spread from equity markets to credit markets, traders are heavily shorting an ETF that holds a significant volume of software company loans through record put option positions.
Options traders in the U.S. market are aggressively purchasing put options on the Invesco Senior Loan ETF (ticker: BKLN). This fund tracks a leveraged loan index, and the core rationale lies in its portfolio composition—according to Susquehanna International Group, approximately 18% of the fund's exposure consists of loans to software companies, including well-known names such as McAfee and Proofpoint.
Over the past three weeks, bearish bets on the ETF have surged sharply. Data shows that the total number of put option contracts has exceeded 400,000 (equivalent to 40 million shares), driving the open interest in put options to its highest level since 2023.
The short positioning index has hit a new low since April of last year.
Monday’s trading activity further confirmed investors' pessimistic expectations. One investor purchased 30,000 BKLN put options expiring in April with a strike price of $20. Based on calculations, this trade would break even if the fund declines by 3.5%, falling below its lowest level in April 2025.
This was followed by an even more aggressive bet: an additional 50,000 put options were traded, speculating that the ETF would experience a similar decline by mid-July.
The fund has now experienced four consecutive weeks of outflows.
Beyond the aggressive shorting in the options market, capital flows in the spot market have also been notably weak. As of Monday, BKLN fell approximately 1% to $20.44, marking its lowest point since April 10 of last year (i.e., April 2025), when markets were grappling with tariff-related turbulence.
More concerning is the fact that the ETF has faced four straight weeks of capital outflows, with total withdrawals nearing $1 billion.
Monday’s trading is likely to further increase overall put positioning. A series of transactions last week indicated that investors are frantically building defensive positions by purchasing put options to hedge against the ETF’s downside risk.
Data revealed that one or more investors bought a total of 250,000 July-expiring $20 puts last week, following the purchase of 100,000 April-expiring puts at the same strike price in early February.
Market sentiment has shifted from betting on a rebound to capitulation.
The collapse in sentiment is reflected not only in shorting credit but also in abandoning hopes for 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 roughly two weeks ago during a sharp sell-off in software companies.
This suggests that investors no longer expect a short-term recovery in the software sector.
Commenting on this wave of liquidation, Susquehanna International Group stated bluntly in a Friday analysis:
"As the sector continues to underperform, investors are throwing in the towel."
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