I touch my thumb, index, and middle finger together with my middle finger extended about 1/4" (yeah, yeah, cue the middle finger jokes...) My pinky and ring fingers are flush with my palm.
Writing is done similarly to holding a pen, with only my middle finger touching the screen. I found hand writing and drawing to be pretty natural this way after a short adjustment period. It's easier, and more stable (for me that at least) than just dragging my index finger.
I was going to buy a stylus, but I just got used to doing it this way. Besides, I like the simplicity of just having to grab the iPad and not worry about "accessories."