Boeing’s textbook bull retracement pattern made it a top contender on our weekend Scouting Reports. But Sunday’s plane crash changed everything. Google it if you haven’t read the details. I want to focus on how we might have traded this morning’s down gap.

Specifically, I’m going to illustrate how I scaled-in to bull puts and successfully turned a large loser into a scratch.

Late last week with BA stock around $420, I sold the April $385/$380 bull put spread for 61 cents credit. As I often do with credit spreads, I began with a starter position which gave me the ability to add size into further weakness. Based on Friday’s strong close, I figured the stock might just rip higher this week thus denying me the chance to increase my position.

I was dead wrong.

This morning, BA stock opened at $371 and traded as low as $365 in the first few minutes. The put spread opened near $2.90 taking my position from slightly profitable to down $230.

OUCHIE!

Here’s what kept me from panicking. First, BA was already down 10+% on the news increasing the likelihood that the damage was already priced in. The truth is no one knows how much impact there will be to Boeing’s profits (if any). But a 10% overnight drop on such a large company that has been absolutely killing it from a fundamental and technical perspective seems like a lot.

Second, even if my guess about the 10% drop being excessive was just that – a guess, the stock was gapping into major support zones. For starters, we were filling the late-January earnings gap. Then, we were testing a cluster of old resistance pivots that formed the high of its yearlong trading range.

If nothing else, it was worth waiting for five to ten minutes at the open to see if the market was in a buying or selling mood.

Here’s a tip:

Bailing on existing positions at the open on substantial gaps like this is a terrible idea.

If I had preset stop losses on BA positions, I would have removed them before the open. It’s worth risking a bit more pain than selling at what turns out to be the low for the day. That’s true even if you carry a bull put spread and the stock is gapping below your short strike. In this case, BA opened almost $10 below my lower strike.

I let the market settle for 5 minutes and once we started to break above the first 5-minute candles high, I pulled the trigger on a 2nd tier for my bull put. With the high volatility it took a bit of working to get filled, but eventually, I sold another April $385/$380 bull put for $2.65. If you add both fills and divide by two, you’ll discover my average credit for the position lifted to $1.63.

By increasing the average credit from 61 cents to $1.63, I put myself in a position to recoup my loss much quicker on a recovery in the stock price.

Rather than get greedy, my goal was simply to recoup my loss. As such, after I got filled, I promptly input an order to buy to close both tiers at $1.63.

Fast forward 90 minutes and VOILA! The rapid snap-back in BA stock price and the intraday drop in implied volatility that followed crushed the put spread value to $1.63 and hit my target.