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Ebix's Earnings Beat Fuels Options Activity

Options players continue to prefer puts on EBIX

by 3/13/2012 12:40:35 PM
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Ebix Inc. (EBIX - 23.80) has caught the attention of options players in today's session, following the software concern's early morning announcement that its fourth-quarter earnings rose to $17.3 million, or 44 cents per share, beating analysts' expectations for a per-share profit of 41 cents. Revenue improved 26% to $44.1 million, coming in above the Street's forecast for $43.3 million in sales. EBIX also raised its quarterly dividend payment by 25% to 5 cents per share.

As a result, both calls and puts are trading at accelerated levels -- specifically, five times and 10 times their respective average intraday volume. Breaking down the activity by numbers, puts are the winning the race, with around 2,800 contracts changing hands, compared to roughly 1,400 calls that have crossed the tape.

Today's put popularity is just business as usual for the stock, which boasts a Schaeffer's put/call open interest ratio (SOIR) of 1.39, showing that put open interest outweighs call open interest among options slated to expire within the next three months. Plus, traders on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 1.25 puts for every call during the previous 10 sessions.

This bearish trend toward EBIX is not strictly relegated to the options arena. Short interest currently accounts for a staggering 28% of the stock's available float. It would take nearly four weeks to cover these shorted shares, at the equity's average daily trading volume.

Not only is EBIX's well-received earnings report driving heavy options volume in today's session, but it is boosting its price, as well. The stock was last seen trading approximately 5% higher, adding to its 2.7% year-to-date gain. In fact, the stock is on pace to regain a perch atop its 20-day moving average -- a trendline not toppled on a daily closing basis since Feb. 14.

Daily Chart of EBIX since January 2012 with 20-Day Moving Average

From a contrarian perspective, EBIX's momentum could be stunted at the $24 mark in the near term. This strike is home to heavy call open interest in the soon-to-expire front-month series of options, and could emerge as a level of options-related resistance as the hedges related to this open interest begin to unwind.

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