The extended bigraded Toda hierarchy (EBTH) is an integrable system satisfied by the Gromov-Witten total descendant potential of CP 1 with two orbifold points. We write a bilinear equation for the tau-function of the EBTH and derive Fay identities from it. We show that the action of Darboux transformations on the tau-function is given by vertex operators. As a consequence, we obtain generalized Fay identities.