Paper sold 49,000 XLF Jul 19 Puts for $0.34 (2.2 times usual volume) with stock at $19.90
Paper sold 48,000 SIRI Jan 2015 2 Puts for $0.15 (2.1 times usual volume) with stock at $3.22
Paper bought 19,829 TSM Jan 2015 17.5 Calls for $2.20 (65.8 times usual volume) with stock at $17.46
Paper bought 1,750 KOL Kil 17 Calls for $0.925 (15.6 times usual volume) with stock at $17.47
Paper bought 2,000 BKS Jan 15 Puts for $2.35 (5.2 times usual volume) with stock at $15.49

Last week, Ebix received a letter from the U.S. Attorney General for the Northern District of Georgia informing them that they were opening an investigation into allegations of business malpractice brought to their attention by pending shareholder class-action lawsuits. Ebix has dealt with allegations such as these before and they were all disclosed in its reports filed with the SEC. Ebix Chairman and CEO Robin Raina believes that these allegations are without merit and will be dismissed. 

Despite CEO affirmations that everything is okay, some speculators believe that shares in EBIX can plummet all the way to zero. According to Gotham City Research, the stock is at most worth $8.00 per share. That is a generous estimate, as they did not take into account any accounting irregularities, regulatory event risk, flat/declining organic growth, tax risk, and other risks identified in their prior reports.

Ebix is also severely in debt. It owes over $80 million and $100 million to creditors and U.S. taxpayers, respectively. 

Last month, Ebix announced results for the first quarter of 2013. Total first quarter 2013 revenue was $52.6 million, an increase of 20% on a YOY basis, as compared to first quarter 2012 revenue of $43.8 million. Diluted earnings per share for the first quarter 2013 rose 13% YOY to $0.45, as compared to $0.40 in the first quarter of 2012.

The “Institutional Trade”:

On 5.24.2013 a trader sold 1678 EBIX July 20 Puts for $.60

Their Risk: $1940 per 1 lot
Their Reward: $60 per 1 lot
Breakeven: $19.40
Cash Received: $100,680

On 6.20.2013 These Puts are Trading for $8

This Trade has Lost: (1678 * $8 – $.60 * 100)= $1,241,720

(Full Disclosure: I am long EBIX July 20 Calls for $.20)

Unusual Option Activity:

We define unusual option activity as large block trades that represent a large percentage of daily option volume. The block trade is considered “unusual” if the option volume is above the average daily volume over the past 22 days. At KeeneOnTheMarket.com we scan and analyze order flow from all of the major options exchanges in order to identify any unusual option activity.

Analyzing unusual order flow gives traders a window into what the positions that large institutional players have. The majority of unusual option activity can be traced back to hedge funds, mutual funds, and other large institutions. Knowing where these institutions are placing their bets can be hugely advantageous for any trader. These institutions have informational and technological advantages that the average trader doesn’t have, and the amount of time and analysis that goes into every one of their trades is substantial.  We offer this service through our 7 hour daily LIVE trading room http://bit.ly/135QWt8 or through Premium Twitter feed with all entries, exits, and unusual options activity tweeted all day long: http://bit.ly/11f0L9u .

Order flow can however at times be deceiving. One might logically thing that a large block buyer of calls is bullish on the underlying. This is not always the case. Remember that a large number of participants in the equity options market are hedgers. Long calls are a hedge against short stock, and long puts are a hedge against long stock. With this in mind we have developed a 7 step trading plan that helps filter out unusual option activity that will not provide actionable trade setups. It is by using this plan that we are able to identify the most significant unusual options activity trades every day. 

Paper bought 1,804 LVS Sep 46 Puts for $2.55 (2.4 times usual volume) with stock at $49.03
Paper bought 2,603 LYB Aug 62.5 Puts for $2.80 (2.4 times usual volume) with stock at $64.62
Paper bought 1,500 ETE Jul 55 Puts for $2.25 (4.3 times usual volume) with stock at $55.31
Paper bought 1,261 KLAC Jul 50 Puts for $0.45 (3 times usual volume) with stock at $53.43
Paper bougth 5,000 SLM Jan 20 Puts for $2.94 (2.4 times usual volume) with stock at $21.93

Paper bought 3,700 LQD Aug 113 Calls for $0.65 (3.9 times usual volume) with stock at 111.15
Paper bought 2,340 WBMD Sep 30 Calls for $1.05 (10.7 times usual volume) with stock at $25.32
Paper bought 2,849 HALO Jul 7.5 Calls for $0.45 (3.9 times usual volume) with stock at $5.89
Paper bought 1,263 LNC Aug 36 Calls for $1.19 (2.8 times usual volume) with stock at $34.45
Paper bought 500 EUO Aug 19 Calls for $0.65 (2.7 times usual volume) with stock at $19.08