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Advanced Micro Devices Inc. (NYSE: AMD) stock is falling this morning after an analyst yesterday expressed concern that microchip producers are falling behind industry leader Intel (NASDAQ: INTC) in product offerings. The Cowen and Co. analyst said that AMD continues to lag behind Intel's new graphics processor offerings while the market is increasingly demanding graphics-intensive applications. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on AMD.After hitting a one-year high of $23.00 in December, the stock has fallen much of the last year and hit a one-year low today. This morning, AMD opened at $11.15. So far today the stock has hit a low of $10.52 and a high of $11.50. As of 11:45, AMD is trading at $10.65, down $0.63 (-5.6%). The chart for AMD looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider an April bear-call credit spread above the $16 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade, we will make an 8.2% return in 5 months as long as AMD is below $16 at April expiration. AMD would have to rise by more than 50% before we would start to lose money.
AMD hasn't been above $16 since January, and has shown resistance around $13 recently. This trade could be risky if the stock continues to find support around $12 and moves higher if the economy becomes reinvigorated, but even if that happens, this position could be protected by the resistance AMD could find from its 200-day moving average, which is currently at $14 and falling.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in AMD. He does control a bullish hedged position in INTC.
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