Self-confidence

Cephalon (CEPH) has cooked a deal to buy call options covering 2.5 million of its own shares from SBC Warburg in order to participate in the potential for near-term upticks in the stock. The company will issue up to 500,000 shares of its common - worth $9.7 million at Friday's close of $19.375 - to pay for the options.

A call grants the buyer the right to acquire shares at fixed prices. If the shares don't hit the predetermined strike prices over the term of the option, the buyer doesn't exercise the option because the stock can be purchased in the market at a cheaper price. The option retires worthless and the buyer loses the premium...