If you are holding stock in Advanced Micro Devices (NASDAQ:AMD) right now, you should consider taking some profits off the table. AMD stock has been on an impressive run during the past month, but the rally has hit extreme levels. As such, a short-term correction is coming … soon.

It’s important to keep in mind that this is a short-term correction. AMD has a lot of upside over the long-term. The company has caught market-leader Intel Corporation (NASDAQ:INTC) flat footed on cutting-edge semiconductor offerings, and it will take Intel months to catch up. By then, AMD will have stolen more market shares in both the desktop and enterprise/cloud server market.

AMD is also putting pressure on graphics processing giant Nvidia (NASDAQ:NVDA). AMD’s new Radeon Pro V340 graphics card is touted as a direct contender for many applications currently occupied by Nvidia’s top-of-the-line offerings. The kicker is that AMD chips come at a considerable price discount for businesses.

So, AMD is a solid long-term buy-and-hold consideration. And there are going to be much better prices to buy in at in a week or so.

The reason lies in AMD stock’s recent bump higher. The stock has gained momentum on a series of bullish analyst research notes from the past two weeks and this weekend’s Radeon Pro V340 unveiling. This hype has steadily pushed AMD stock higher, ultimately forcing many bearish investors to capitulate.

AMD stock short sellers have been hit the hardest. As of the most recent reporting period, some 146 million shares of AMD stock were sold short — about 17.6% of the company’s total float. This reading dropped 13% amid a so called “stealthy short squeeze” according to the most recent data, contributing to some of AMD’s upside.

That short squeeze was no longer stealthy as of Monday, hitting overdrive when AMD stock broke out above $25. What’s more, you could almost see the moment when short covering ran out of gas yesterday, when AMD stock rolled over just after topping $27.

Click to Enlarge Technically, AMD’s mid-session rollover finally found support at $25 and the shares finished above their session lows. There is still momentum to be had for AMD stock, but the shares are destined to either consolidate or correct lower.

For starters, AMD’s 14-day relative strength index (RSI) topped out at 84.43 yesterday. Readings north of 70 are considered overbought, which often means profit taking and a correction are close at hand.

Additionally, AMD appears to be on the backside of a short-term bump-and-run technical formation. The “bump” started on Monday last week, when AMD rallied sharply higher and broke out of its former, more measured, uptrend. The “run” phase appears to have started at about 1:42 p.m. Eastern on Monday, when the stock peaked at $27.20 and turned sharply lower.

The run phase of this formation could see Advanced Micro fall as low as $20 before profit taking finally dies down. This area is home to round-number psychological support and AMD’s 20-day moving average. A pullback to this area would offer up a great buying opportunity for long-term bulls.

That said, there is the potential for $25 to hold as technical support and prevent an all-out run lower for AMD stock. In this scenario, Advanced Micro could be stuck in a consolidation pattern for weeks before overbought conditions finally work their way out.

2 Trades for AMD Stock

Bear Put Spread: Traders looking to bet on a near-term correction in AMD stock might want to consider a Sep $23/$24 bear put spread. At last check, this spread was offered at 33 cents, or $33 per pair of contracts. Breakeven lies at $23.67, while a maximum profit of 67 cents, or $67 per pair of contracts — a potential return of 100% — is possible if AMD stock closes at or below $23 when September options expire.

Put Sell: Traders looking for a more conservative play might consider a Sep $20 put sell position. This put was last bid at 20 cents, or $20 per contract. Traders will keep the premium received as long as AMD holds above $20 through September expiration. However, should AMD trade below $20, you could be assigned 100 shares of AMD stock at $20 each — which, honestly, would be an excellent price for a stock with a lot of long-term upside potential.

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