The April/May calendar put spread on Advanced Micro Devices, (NYSE:AMD), has some potential for a decent profit with defined risk.

When a calendar put spread is purchased, the maximum loss is the amount of the spread or debit. This is a controlled risk trade with good upside potential and favorable expected return. The current price of AMD is $8.02. For this trade we are going to sell the April 8 put for $0.33 and buy the May 8 put for $0.49. The net debit is $0.16. If you're going to set your maximum risk at $500, which would be 1% of a hypothetical $50,000 trading account, you'd use 31 contracts. Actually with 31 contracts the maximum possible loss would be $496. The maximum gain on this trade is $716.94 and the expected profit is $660.97. This is assuming that the position is closed by the April option expiration on April 21st, 2012. The position will be essentially delta neutral at the onset of the trade, the delta of the April 8 put is -47 and the delta of the May 8 put is -46. The IV or implied volatility of the April 8 put is 46.29% and the IV of the May 8 put is 42.80%. The difference in the IV between the 2 months makes this a favorable trade.

For those not familiar with expected profit, it is calculated by summing the multiples of the probabilities of the stock being at each price by the result of the position at that price. When trading options it is critical to evaluate your position in terms of expected return or expected profit and only take trades where the probabilities are in your favor. Use an option calculator for each trade to compute the expected return. This trade on AMD has a very good probability of success with a defined risk. Correct position sizing is also important. In general terms you shouldn't risk more than 1% of your portfolio on any given trade.

The profit and loss graph for this shows where the breakeven points are in visual terms.

(Click to enlarge)

**Disclosure: **I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.