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Can Ebix Overcome the Rumors?


Goldman Sachs thinks so; the banking giant recently put in a bid to buy Ebix and take it private.

Ebix Inc. (NASDAQ:EBIX), headed by president and CEO Rob Raina, is one of the largest international suppliers of on-demand software and e-commerce services to the insurance industry, and the company has its sights set on becoming the leader in this field. With over 30 offices scattered across the globe from the United States to Japan and India, Ebix is able to power a multitude of exchanges relating to life, annuity, health, and other forms of insurance. Over the past three years, both Forbes and Fortune magazine have ranked Ebix as one of the fastest growing technology companies in the United States, and it conducts in excess of $100 billion worth of insurance premiums on its platforms.

EBIX opened today with share prices of $19.72, a full seven points above its 52-week low of $12.08, which the company hit in February after a report was released by Gotham City Research LLC criticizing the company's accounting practices and causing share prices to fall by nearly 30%. EBIX has a current market cap of $735 million and a beta rating of 1.3, meaning that it is a relatively more volatile investment than average. Share prices have held steady, fluctuating only between $19.72 and $19.80 throughout this morning.

The company, based in Atlanta, Georgia, has been the subject of a bevy of rumors over the past two years regarding its less-than-honorable accounting practices; both the SEC and the IRS have taken an interest in the company -- specifically, in regards to Ebix's operations in foreign countries such as India where it pays lower tax rates than in the United States. Ebix has vehemently denied any wrongdoing and the company has yet to be officially investigated, but there is still a cloud of doubt hanging over the company. Luckily for Ebix, investment banking giant Goldman Sachs (NYSE:GS) does not seem to be worried about the rumors swirling around Ebix; Goldman recently put in a bid to buy the company and take it private for $20 per share, just a fraction above its current value. While Ebix have the option to look for other potential suitors in the coming 45 days, the expectation is that the deal with Goldman Sachs will be completed by the end of this year.

My Trade: Buying the EBIX July 20 calls for $.30
Risk: $30 per 1 lot
Reward: Unlimited
Breakeven: $20.30

Greeks of this Trade:
Delta: Long
Gamma: Long
Theta: Short
Vega: Long
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