Starwood Hotels & Resorts (NYSE: HOT) shares are falling today after competitor Marriott International (NYSE: MAR) reported Q2 earnings that dropped year-over-year and said it expects weak economic growth and soft U.S. lodging demand to persist into 2009. This could be a bad sign for HOT, which reports earnings in two weeks. 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 HOT.

After hitting a one-year high of $75.29 last July, the stock has hit a new one-year low today. This morning, HOT opened at $36.81. So far today the stock has hit a low of $35.23 and a high of $36.82. As of 12:05, HOT is trading at $35.77, down 1.63 (-4.4%). The chart for HOT looks bearish and steady, 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 November 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 6.4% return in four and a half months as long as HOT is below $50 at November expiration. Starwood would have to rise by more than 39% before we would start to lose money. Learn more about this type of trade here.

HOT as been above $50 as recently as late May but has shown resistance around $39.50 recently. This trade could be risky if the company's earnings (due out on 7/24) are a positive surprise, but even if that happens, this position could be protected by resistance HOT might find at its 200-day moving average, which is currently around $50 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 HOT or MAR.

Marriott International Inc. (NYSE: MAR) opened at $48.77. So far today the stock has hit a low of $46.82 and a high of $48.85. As of 10:55, MAR is trading at $47.45, up $2.99 (6.7%).

After hitting a one year high of $52.00 in April, the stock dropped sharply to find support just below $44. Hotels are soaring today after Blackstone Group (NYSE: BX) announced plans to purchase Hilton Hotels (NYSE: HLT). Jim Cramer says that some other hotel stocks are deserving of takeovers, and he is tagging Marriott as possible buyout candidate in the aftermath of the HLT deal. Other potential targets mentioned are Starwood Hotels (NYSE: HOT) and Wyndham (NYSE: WYN). Our own Douglas McIntyre sees MAR and HOT as targets as well. Recent technical indicators for MAR have been bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $40 range. MAR hasn't been below $40 since October and has shown support around $43 recently. This trade could be risky if the acquisition buzz surrounding the hotel stocks dies down with little action, but even if that happens, it looks like this stock could find support right near $45, where it bounced a few times in the past two months.

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 MAR, BX, HOT, HLT, or WYN.

MOST NOTEWORTHY:

Sony Corp (NYSE: SNE) and the Dell Inc. (NASDAQ: DELL) top today's extensive list of downgrades.

• Sony was downgraded to Neutral from Buy at Goldman Sachs, citing concerns over the gaming business and the competitive electronics environment.
• Dell was downgraded by American Technology to Neutral from Buy, citing risk to 2007 estimates given the competitive pressures from Hewlett-Packard Co (HPQ), Apple Computer (AAPL) and Lenovo (LNVGY).

OTHER DOWNGRADES:

Goldman Sachs downgraded the Lodging Sector to Neutral from Attractive, citing the expected industry-wide deceleration of 2007 RevPAR growth.

• In addition, Goldman noted that Marriott International Inc. (NYSE: MAR), Starwood Hotels & Resorts Worldwide Inc. (NYSE: HOT) and Hilton Hotels Corp. (NYSE: HLT) historically underperform after reporting Q3 earnings.
• The Dow Chemical Company (NYSE: DOW) was downgraded to Neutral from Buy at Banc of America. The firm cited valuation, a mixed outlook for specialties and the company's reluctance to accelerate share buybacks for the downgrade.
• Finally, Wachovia downgraded T.Rowe Price Group Inc. (NASDAQ: TROW) to Market Perform from Outperform, citing valuation, highlighting shares trading at a 10% premium to its peers.

Downgrade summaries provided courtesy of TheFlyOnTheWall.com.