Here's what I'd do. Take this as you wish.
Personally, I'm not a fan at all of bare metal or bubbling paint because I know there's rust under there and rust does not stop unless it's made to.
Tape off/mask everything above the body line of the rear arch. Then, back mask right in the middle of the body line of the arch (more on that below).
With some 400 grit paper, sand away that damn rust. Then use some 600, then 1000 grit to get it smooth. Prime with some filler primer (to take care of any small pits) and allow to dry completely. Sand again with the 600 then 1000. Spray some rattle can paint of the same color as your car. Top coat with some two-part clear.
Where to get top coat paint and two-part clear? Most cities of size have a FinishMaster now. If not, find out where your local body shops get their paint and supplies. They can mix up paint matching your color code and put it in rattle cans. You'll probably need two cans get the job done and they are less expensive if you buy in multiples.
I do it that way because I have no paint gun. If you do and know how to use it, you're ahead of the game.
What you're trying to do is get your tape line somewhere that is not noticeable. That body roll right above the arch is about the only place.
Here is a video that does a pretty good job explaining back masking:
His is easier in the video because he's doing a straight line. You're working on an arch, which is harder, but it's pretty gradual and can be done.
Once you're finished and everything is cured (about a week if your climate's not to humid) you can hit the line with some 1500 grit if it's too noticeable for your tastes.
Hope that helps and good luck.