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Author: Randybar Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 267030  
Subject: Writing an option Date: 9/14/1999 12:26 PM
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I was approached about writing an option and given the following case study. I need help analyzing the financial upside and downside, ignoring insider issues for the moment.

Write/sell option for 200,000 shares of low priced ($1.00) public company, at $1.50/share, premium of $0.25/share, option good for one year. Sell option to president of this company. So, president/insider pays premium for leverage on block of his own stock and I, as writer, get the benefit of the premium ($50,000.00) and the hoped for gain from current price to strike price.

Since I expect the stock price to rise, I assume I will be selling a put option. But this means that the president/insider is buying a put option and expects the contrary. And, I guess, only one of us can be right. What would you do and why and shouldn't I begin to accumulate this stock to meet my put obligation if the option finishes in the money?
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