Advanced Micro Devices (NYSE: AMD) shares are trading higher today after rival Intel Corp. (NASADQ: INTC) posted a second-quarter profit of $1.6 billion, or 28 cents per share, ahead of analysts' estimates of 25 cents per share, reflecting strong demand for processors. AMD is also getting a boost into its earnings tomorrow from news that INTC may face new charges from European antitrust regulators, according to a report in The Wall Street Journal. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on AMD.

After hitting a one-year high of $16.19 last July, the stock hit a one-year low of $4.53 yesterday. AMD opened this morning at $4.90. So far today the stock has hit a low of $4.68 and a high of $4.95. As of 1:55, AMD is trading at $4.93, up 21 cents (4.4%). 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 bullish hedged play on this stock, I would consider a January covered call at the $5 level. A covered call is an options position that combines the purchase of stock with the sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 30% return in just 6 months if AMD is above $5 at January expiration. AMD would have to fall by more than 21% before we would start to lose money.

AMD hasn't been below $3.90, which would be the break-even point, at all in the past year and has shown support around $4.50 recently. This trade could be risky if today's encouraging Intel results are a result of them taking even more market share from AMD, but even if that happens, this position could be protected by the 30% downside protection on this trade.

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 bullish hedged positions in INTC.