Dec. 10 (Bloomberg) -- Societe Generale told clients to sell SAP AG options on speculation the world’s biggest maker of business-management software may announce a “profit warning” in January as a worsening economy slows demand.

Investors should sell a call option expiring in June at a strike price of 32 euros whilst also selling a put expiring in the same month at a strike of 22 euros, the brokerage said. The so-called strangle would remain profitable so long as SAP shares trade in a range between 17.75 and 36.25 euros, it added.

The German software company has dropped 27 percent since September, underperforming the country’s DAX Index, as sales have suffered amid a global economic slowdown. The shares were trading at 27.48 euros as of 12:51 p.m. today in Frankfurt.

“The worsening macroeconomic environment may set the stage for another profit warning in January,” analysts wrote in the note today. “We believe that there is a significant risk that fourth quarter 2008 license revenue will fall short of consensus expectations.” The brokerage has a “sell” recommendation on SAP.

A strangle strategy is appealing because it allows investors to get income from selling the two option contracts, the brokerage said. Such strategies also allow investors to profit even if the shares trade within a “wide” range, it added.

The Walldorf, Germany-based company in October withdrew its 2008 sales forecast and lowered its profit-margin target, citing the economic slump. The adjusted operating margin will be about 28 percent, it said, below the previously forecast operating margin of between 28.5 percent and 29 percent.

Options

In November, Citigroup Inc. told its clients to sell SAP call options on speculation the shares will “tread water” until the end of the year as demand for its products weakens.

Call options give the buyer the right to buy shares at a pre-agreed price on or before a specific date. Puts convey the right to sell. By selling an option, the investor is taking a bet the contract won’t be exercised, allowing them to keep as profit the price paid for the call or put.

Options are derivatives, or securities that derive their value from an underlying asset, and can be used to protect against a decline or to speculate on the asset’s future value.

To contact the reporter on this story: Gareth Gore in Madrid ggore1@bloomberg.net.

Last Updated: December 10, 2008 07:04 EST