Shares of E*Trade Financial (NASDAQ: ETFC) caught a boost this morning on reports that Citadel Investment Group LLC, the online broker's largest stock and bond holder, has scrapped its plan to unload 120 million shares over the next three months. The size of the planned sale represented about 10% of the hedge fund's investment in ETFC.
"Citadel believes that the termination of the plan at this time is in the best interests of E*Trade and all of its stakeholders," said the firm in a statement. The massive sale, first announced on Aug. 11, was due to commence today, but Citadel says that no shares have been sold under the plan.
Investors seem intensely relieved by Citadel's change of heart, with ETFC vaulting more than 14% higher in short order. Shares of the beleaguered broker have racked up a 2009 gain of 42.6%, but they've recently been stymied by resistance in the $1.50 neighborhood. Today's bullish gap could mean that this level will now switch roles to act as support.
There's no shortage of sideline cash to help perpetuate today's rally. Short interest on ETFC spiked by 139.3% during the most recent reporting period, and these bearish bets now account for a hefty 36.2% of the stock's available float.
Meanwhile, in the options pits, call volume on ETFC today quickly spiked to 17 times the norm. Most active in early trading was the September 2 call, where 12,679 contracts traded on open interest of 36,747 within the first hour of the session. About 67% of this volume changed hands at the ask price, revealing a bias toward buying activity, and implied volatility on the option surged by more than 68% as a result.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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