Rolling up and out in Cephalon (NASDAQ: CEPH)

Biopharmaceutical name Cephalon Inc. (NASDAQ: CEPH) on Monday announced plans to acquire Swiss-based drug maker Mepha AG, and at least one investor may have taken that as good news and rolled a long front-month call position up and out on a bullish play.

CEPH shares are currently trading at $65.61, up 81 cents on the day. The company is scheduled to announce earnings figures on Feb. 11 after the market closes. Analysts expect the company to announce earnings of $1.58 per share.

The at-the-money February 65 calls have crossed the tape more than 13,500 times so far on the day versus current open interest of 16,800 contracts, while the May 70 calls have traded more than 18,100 times and are home to current open interest of 3,400 contracts. This volume and open interest relationship indicates investors likely closed their front-month positions and opened positions in May.

Around 11:29 a.m. EST, investors sold the February 65 calls at a bid price of $1.85 per contract and bought to open a large block of the May 70 calls at an ask price of $2.79 per contract, paying a net debit of 94 cents per spread. The investor expressed a bullish bet that CEPH shares could rally at least 8% during the next four months (the breakeven on this purchase is 70.94). The February 65 calls and the May 70 calls have an implied volatility of roughly 30, compared to a 30-day historical volatility of 21%.

CEPH shares are currently up roughly 20% from their October-low of $53, and it’s interesting that at least one investor is calling for even further upside and wants to maintain long exposure in the company. While investors should not interpret this morning’s roll action as a reason to buy up CEPH shares, at least one investor expects the stock to keep rolling higher for the next four months.

For more on CEPH:

Call buyers surface as Cephalon (CEPH) stock pops

Options action in Cephalon, Simon Property, A123 Systems