Suppose a week ago, when ETFC was traded below $4. Just like many
others, I expected a buyout within 1 month. A sensible way to
speculate is to buy Dec. call strike at $4, say, $1 per call.

Now the news of cash infusion came out, the volatility going down and
an immediate buyout is unlikely,  therefore, I reckon the price
probably won't go beyond $6 in three weeks when my call expires. it
makes sense to short the stock at $5.5 today, locking in a profit of
$0.5 per share regardless what's going to happen next month.

My guess is people selling to hedge their position, expecting more
downside than up in the near future.

If I was TD or Schwab, I would consider buying Etrade for long term
and for tax purposes.

I don't see how the purchase of etrade by TD or Schwab would be
beneficial from tax purposes.  Whoever buys ET would not be able to
use ET's loss to offset the buyer's income anyway.  I do agree that ET
is a good investment due to its retail business, which could generate
lots and lots of revenue for years to come.