Morningstar recently analyzed selling an EBay put. In the example, current price was around $30. A 35 strike price gave a 5.90 premium. If EBay dropped to 25, wouldn't I be forced to buy it at 35? My cost would then be 29.10.

Sounds dicey to me, unless you use a strike around the current price.

Yes, I think writing the 35 strike is a bit dicey too. I much prefer the 30 strike.

There's just not a lot of time premium in the 35 strike, most of it is intrinsic value. Much more time premium in the 30 strike, and I like to maximize time premiums, that's just my style.  Plus less risk in the 30 strike, as you pointed out. If you write the 35 strike, you're basically going to buy the stock unless it has a big move to the upside. And if if moves against you, there's a good chance you'll end up owning a stock worth less than your cost. Not my style. I like to have time value decay and depend on that, rather than hope for a big upside move in the stock over a limited time frame.

I like to leave the dicey stuff for my tomatoes.

You would be forced to buy it there, however, this is still a great value investment, taking you agree with Morningstar's valuation of ebay.  The whole article is premised on the fact that 1) ebay is a wide moat company that 2) is undervalued.  Morningstar places the value of ebay at $44, so even if you are forced to buy at $35, you're still gaining.

 The theory is that if the option is never exercised, you still make out on the option contract, but if it is exercised, then you, for a cost of $29.10, are getting a stock you value at $44.  (Mr. Buffett would be drooling right about now).

 This method only makes sense on true value opportunities and allows you to benefit from both the value of the under priced stock, as well as profiting from the option contract.  If you think the stock is only worth $30, a $35 put makes no sense.
 

Lorrie Norrington EXPOSED:

http://www.youtube.com/watch?v=-lRQLCmEgpk

Lorrie Norrington will be succeeding Rajiv as President of eBay Marketplaces.