CIGNA Corp. (NYSE: CI) reported third-quarter earnings this morning that rose 22%, strengthened by increased membership, reduced medical expenses, and growth in specialty services. Cigna officials now expect 2007 earnings to come in at $3.80 to $4 a share. However, a warning from the company about 2008 earnings is pushing the stock lower. 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 CI.

After hitting a one-year high of $57.61 in June and falling thereafter, the stock has risen over the past two months. This morning, CI opened at $51.25. So far today the stock has hit a low of $48.63 and a high of $51.25. As of 11:15, CI is trading at $49.50, down $2.25 (-4.3%). The chart for CI looks bullish but deteriorating slightly, 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 a December bear-call credit spread above the $55 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. For this particular trade, we will make a 9.9% return in 7 weeks as long as CI is below $55 at December expiration. Cigna would have to rise by more than 11% before we would start to lose money.

CI hasn't been above $55 since June and has shown resistance around $53 recently. This trade could be risky if the company's earnings turn out to be better than they seem at first blush this morning, but even if that happens, this position could be protected by strong resistance CI has formed just under $55, where the stock has topped in July and September.

Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: At publication time, Brent neither owns nor controls positions in CI.