Citadel scraps plans to unload E*Trade Financial shares

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.