American International Group, Inc. (NYSE: AIG) is down with most of the rest of the market as investors have reacted sharply to the JP Morgan Chase (NYSE: JPM) buyout of Bear Stearns (NYSE: BSC) for only $2/share. Investors seem to be worried that BSC may not be the only bank with overexposure to the troubled credit markets, and fear that the fallout from the credit crunch may spread to other industries. Any stock that has exposure to mortgage backed securities is seeing some fallout from the extremely low valuation of these assets that BSC received. Although AIG has some problems of its own, it is one of the few companies that is said to have enough of a market presence to make an offer for any struggling firms. 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 AIG.

After hitting a one-year high of $72.97 in May, the stock has hit a new one-year low today. This morning, AIG opened at $39.42. So far today the stock has hit a low of $38.50 and a high of $40.38. As of 1:40, AIG is trading at $38.99, down $2.19 (-5.3%). The chart for AIG looks bearish and steady, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.

For a bearish hedged play on this stock, I would consider an April bear-call credit spread above the $50 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 one month as long as AIG is below $50 at April expiration. AIG would have to rise by more than 25% before we would start to lose money. Learn more about this type of trade here.

AIG has been above $50 as recently as late February, but has shown resistance around $44 recently. This trade could be risky if the Fed slashes rates tomorrow and we find a bottom, but even if that happens, this position could be protected by resistance AIG might find at its 50 day moving average, which is currently around $51 and falling.

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 neither owns nor controls positions in AIG.