Merck & Co. Inc. (NYSE: MRK) stock is trading lower today after the company announced that its cholesterol drug Vytorin failed to outperform the generic form of Zocor in reducing cholesterol in patients with a predisposition to high cholesterol. Analysts are mixed as to whether the outcome of this study will affect Vytorin sales, which was co-developed with Schering-Plough Corp. (NYSE: SGP). 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 MRK.

After hitting a one-year low of $42.35 in February, the stock hit a one-year high of $61.62 in December. This morning, MRK opened at $59.88. So far today the stock has hit a low of $58.66 and a high of $59.88. As of 10:30, MRK is trading at $59.59, down $0.96 (-1.6%). The chart for MRK looks bullish but deteriorating, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.

For a bearish hedged play on this stock, I would consider a February bear-call credit spread above the $65 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 4.2% return in 5 weeks as long as MRK is below $65 at February expiration. Merck would have to rise by more than 9% before we would start to lose money.

MRK hasn't been above $62 at all in the past year and has shown resistance around $61 recently. This trade could be risky if investors seek shelter from rough markets in drug stocks in the coming month but even if that happens, this position could be protected by resistance MRK might find just above $60.

Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent controls bullish hedged positions in MRK and SGP. Both the position above and those trades can expire profitably at the same time.