May 14th, 2025
BTO 10× SAP 290P 12/19/25 at $22.28
STO -20× SAP 320C 12/19/25 at $16.48
BTO 10× SAP 350C 12/19/25 at $8.77
BTO 1000× SAP at $289.91
1 | Composite structure
Long 1 000 sh + long 10 × 290 puts = synthetic long 290 call
Together with –20 × 320 calls and +10 × 350 calls this collapses to a 290 / 320 / 350 1-by-2-by-1 call butterfly expiring 19 Dec 2025.
2 | Net debit, capital at risk & entry Greeks
| Item | Cash flow | Comment |
|---|---|---|
| Stock purchase | – $289 910 | 1 000 sh @ $289.91 |
| 10 × 290 puts | – $22 280 | +1 000 delta-adjusted |
| –20 × 320 calls | + $32 960 | credit received |
| 10 × 350 calls | – $ 8 770 | debit paid |
| Net debit (capital deployed) | – $288 000 | fully funded in cash |
Approximate Greeks at entry (spot ≈ $289.9, IV 25 %, r 4 %):
| Greek | Value | Interpretation |
|---|---|---|
| Δ | +41 sh | Near-delta-flat; drifts negative as price rises toward $320. |
| Γ | –1.36 / $ (×10⁻²) | Slight short gamma at entry (long gamma appears closer to $320). |
| Θ | +$3.5 k / day | Strong positive theta—the structure earns as time passes. |
| Vega | –16.9 k / vol-pt | Net short vega here because of the –20 at-the-money calls. |
Capital at risk: economically ≈ $0—worst finish still returns a $2 k surplus thanks to the long put covering the stock.
3 | Payoff diagram & key expiration points
(See chart above.)
| SAP price on 19 Dec 25 | Profit | Comment |
|---|---|---|
| ≤ $290 (or ≥ $350) | ≈ $2 k | Floor built by long put. |
| $320 (peak) | ≈ $32 k | Wing spreads collapse; synthetic 290-call worth $30 wide. |
| Breakevens | $290 & $350 | Outside those the position reverts to floor. |
4 | AROI milestones (spot frozen at $320, IV 25 %)
| Milestone AROI | Profit needed | First hit (day) | Calendar date |
|---|---|---|---|
| Minimum 7.5 % p.a. | $ 5 317 | 90 | 15 Aug 2025 |
| 8 % p.a. | $ 8 841 | 140 | 04 Oct 2025 |
| 12 % p.a. | $ 19 360 | 202 | 05 Dec 2025 |
| 16 % p.a. | $ 27 205 | 214 | 17 Dec 2025 |
| Maximum 18.8 % p.a. | $ 32 000 | 216 | 19 Dec 2025 |
AROI = ROI ÷ (time in years).
Time decay does the heavy lifting: profit grows slowly until mid-October, then accelerates as the short-wing calls melt in the final month.
5 | Risk factors & management (AROI view)
| Risk / scenario | Effect on AROI | Possible adjustment |
|---|---|---|
| Early rally to $320 | Raises AROI fast, then stalls | Roll short 320s up (330/340) to lift the tent and extend upside. |
| Big sell-off < $280 | AROI could dip (put IV spikes, stock delta balloons) | Monetise 290-put intrinsic and rebuy cheaper stock or lower-strike put to keep the floor alive. |
| Stale, low-vol grind | Delays AROI milestones | Gamma-scalp intraday (buy dips / sell rips) to harvest realised vol and boost theta income. |
| IV surge (> 30 %) | Slight drag on mark-to-market (short vega) | Hedge vega by buying an extra far-OTM call or short-dated straddle. |
Summary – You’re running a no-loss, capped-gain play that aims for ~19 % annualised if SAP pins $320. Expect the halfway AROI target (~12 %) in early December; until then patience and small gamma-scalps are the name of the game.
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