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Example of selling EBay put wino1  04-30-2008, 2:01 PM | Post #2513259 |  1 Replies
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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.

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Re: Example of selling EBay put hollowcave 05-02-2008, 6:35 PM | Post #2514084
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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.

 

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