Adam Warner in his blog daily options report wrote an excellent article Strategery on how to use options for a broken stock, a stock that gaps downs and suffers a complete chart breakdown.
My play is to scale out calls with about 1-3 month's to go, ideally at strikes within or a shade above the gap. And my play is to do it quickly, before the stock settles into a new and/or lower range and the buying interest dries up.
If the trade *works*, I may bid lower and buy the calls back. Or I may just let nature take it's course and chance letting time decay kick in. It depends on the specifics of the stock action, time until expiration, etc.
I have on occasion played this scenario completely wrong. Thus, I appreciated Adam's article. Next time I encounter a similar situation, I hope that I play it smarter.
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