Last month I noted that Advanced Micro Devices, Inc. (NASDAQ:AMD) was in danger of entering bear market territory. AMD stock had pulled back to support near $12 and its 200-day moving average. Ultimately, it bent, but didn’t break.

I’m expecting a similar performance as we head into October.

Overall, AMD stock was on course to break out above $14 and maybe test its August highs once again. However, a touch of panic hit the tech sector late last week, creating broad-based selling pressure.

AMD succumbed to the fear, plunging alongside its peers in the PHLX Semiconductor Index, but the support held once again in the $12 region and AMD’s 200-day moving average.

Click to Enlarge In a sense, the brief tech panic was a reset button, putting AMD stock pretty much where we left it back in late August. At the time, I recommended a pair of trades — one bullish for the rally I expected, and one bearish for those who were concerned that support wouldn’t hold.

As it turns out, the Sep $12.50/$13 bull call spread hit its maximum profit target on Sept. 1, netting a potential return of about 157%. The Sep $11/$12 bear put spread, however, never traded in the money due to strong support in the $12 region. And, after this area held up solidly following last week’s flash panic in tech, it should hold firm as a floor through October.

The sentiment picture is also reminiscent of late August. Ten of the 32 analysts following AMD stock still rate the shares a “buy,” and the consensus price target rests at a lowly $14.23.

Short interest is up sharply, however. Following a 6% jump in the most recent reporting period, shorted AMD shares now account for around 19% of the stock’s total float. Once again, these bearish bets represent potential sideline money that could flow into AMD as the shares move higher.

There is a catalyst for just such a move higher on the horizon. Advanced Micro Devices is expected to report earnings around Oct. 24 (the date has yet to be confirmed). Analysts are expecting a profit of 7 cents per share on revenue of $1.51 billion. AMD stock has reacted sharply following all of this year’s quarterly reports, and a positive reaction here could be the catalyst for another surge higher.

AMD options traders are certainly expecting just such a rally. Currently, the weekly Oct 27 put/call open interest ratio rests at 0.24, with calls more than quadrupling puts among those options most affected by next month’s earnings report.

Meanwhile, October 27 implieds are looking for a post-earnings move of more than 13%. That places the upper bound at $14.20 and the lower bound at $10.80.

2 Trades for AMD Stock

Call Spread: Traders looking to capitalize on an AMD rally, one boosted by the company’s quarterly earnings report, might want to consider an Oct 27 $13/$14 bull call spread.

At last check, this spread was offered at 25 cents, or $25 per pair of contracts. Breakeven lies at $13.25, while a maximum profit of 75 cents, or $75 per pair of contracts — about a 200% return — is possible if AMD stock closes at or above $14 when weekly Oct 27 options expire.

Put Sell: For a more neutral to bullish trade, an Oct 27 $11 put sell has an excellent chance of finishing out of the money. At last check, this put was bid at 21 cents, or $21 per contract.

As always with a put sell, you keep the premium as long as AMD stock closes above $11 when weekly Oct 27 options expire. On the downside, if AMD trades below $11 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $11 per share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.