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Merck & Co. Inc. (NYSE: MRK) opened at $51.58 Thursday. So far today the stock has hit a low of $50.25 and a high of $52.26. As of 11:55 a.m., MRK is trading at 51.90, down 0.46 (-0.9%).

After hitting a one-year high of 55.14 in May, the stock has been trading within a $5 range over the past three months. The company and its private partner Neuromed announced yesterday evening that they have abandoned development of chronic pain drug MK-6721 because the drug candidate "did not demonstrate characteristics necessary to advance the compound further in development." Technical indicators for MRK are bearish with minor improvement, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bearish hedged play on this stock, I would consider a September 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 and leverage returns. For this particular trade, we will make a 19.0% return in just 6 weeks as long as MRK is below $55 at September expiration. MRK would have to rise by 6% before we would start to lose money. Learn more about trades like this one here.

MRK has never been above $55 for more than a day in the last twelve months, and the stock has shown some resistance around $53 recently. This trade could be risky if the stock breaks through the $55 level where it topped out in June, but the series of lower highs since then suggests a slightly bearish trend.

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 MRK.

Merck (MRK) quits development of pain drug originally appeared on BloggingStocks on Thu, 09 Aug 2007 12:15:00 EST. Please see our terms for use of feeds.

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