Circuit City Stores (CC: sentiment, chart, options) is more than 8% higher after the electronics retailer said it's "exploring a full range of strategic alternatives to enhance shareholder value." As part of that exploration, Blockbuster (BBI) and major stakeholder Carl Icahn have been invited to review CC's books. Blockbuster first offered to acquire CC months ago, though the bid was only made public last month. Today's announcement by CC marks the retailer's first concession to a possible acquisition.

Additionally, CC allowed 3 board nominees supported by shareholder group Wattles Capital Management to stand for election, potentially heading off an unsightly proxy battle. CC's chairman and CEO, Philip J. Schoonover, said, "We are pleased that this matter has been resolved in a manner that best serves the interests of all Circuit City shareholders."

As to the BBI bid, though, Schoonover warned shareholders not to start counting their eggs just yet. He noted, "Let me be clear that our decision to allow Blockbuster and Carl Icahn to conduct due diligence should not be taken as an indication that the board has completed its review of the Blockbuster proposal, that the board has taken a position on the company's value or that it has settled upon a particular strategic course of action."

Today's gain in CC shares extends the stock's run atop support from its 10-day and 20-day moving averages. Short sellers have amassed a sizable position on CC, with 17.5% of the equity's available float dedicated to short interest. Some of today's upward momentum could stem from short covering, but many bears are unlikely to unload their positions until more decisions are made on the acquisition front.