Audit News Brings Annual High, Option Bulls to Ebix, Inc. (EBIX)

Ebix Inc (EBIX) gained ground after reaching a resolution with the IRS

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Published on Jan 7, 2015 at 8:06 AM
Updated on Apr 20, 2015 at 5:09 PM

Software maker Ebix Inc (NASDAQ:EBIX) hit an annual high yesterday of $19.49, and closed 14.3% higher at $18.60, on news that it reached a resolution with the IRS on its income tax returns audit. Activity picked up in the options pits in response, with overall volume soaring to four times what's typically seen. Furthermore, the equity's 30-day at-the-money implied volatility jumped 6.9% to 44.1%, reflecting the growing demand for short-term contracts.

Jumping right in, four of yesterday's five most active strikes were calls, but the No. 1 spot belonged to a put -- the June 14 put, to be exact. It appears these contracts were bought to open, but they could be protective in nature, considering yesterday's price action.

EBIX's move higher was likely to the dismay of many traders, as a stunning 49% of its float is sold short. This figure represents more than 10 weeks' worth of buying power, at the security's typical daily trading levels. Should EBIX continue its upward move, a short-squeeze situation could add fuel to its fire.

In fact, this situation may already be occurring, as short interest has decreased 4.6% in the past six reporting periods. During that time, Ebix Inc (NASDAQ:EBIX) has outperformed the greater S&P 500 Index (SPX) by almost 16 percentage points.


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