Buy-Write

Filed Under » ,
Dictionary Says

Definition of 'Buy-Write'

A trading strategy that consists of writing call options on an underlying position to generate income from option premiums. Because the options position is covered by the underlying position, the downside risk of writing the option is minimized.
Investopedia Says

Investopedia explains 'Buy-Write'

For example, suppose a trader has a 100-share position in XYZ stock and purchases the shares for $10 each. Soon after, the trader decides to write a call option for XYZ stock at an exercise price of $12.50, selling it for a small premium. As long as the price of XYZ stays below $12.50 until maturity, the trader will keep the premium. If the price rises above the $12.50 level and is exercised, the trader will be required to sell the shares at $12.50 to the option holder. The trade will only lose out on the difference between the exercise price and the market price.

Related Definitions

  •

    Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period.
    Read More »

  • Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset in an attempt to generate increased income from the asset. ...
    Read More »

  • Option

    A financial derivative that represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to ...
    Read More »

    • Premium

      1. The total cost of an option. 2. The difference between the higher price paid for a fixed-income security and the security's face amount at issue.3. The specified amount of payment ...
      Read More »

    • Underlying

      1. In derivatives, the security that must be delivered when a derivative contract, such as a put or call option, is exercised. 2. In equities, the common stock that must be delivered ...
      Read More »

    • Call

      1. The period of time between the opening and closing of some future markets wherein the prices are established through an auction process.2. An option contract giving the owner the ...
      Read More »

    • Strike Price

      The price at which a specific derivative contract can be exercised. Strike prices is mostly used to describe stock and index options, in which strike prices are fixed in the contract. ...
      Read More »

    • Fiduciary Call

      A cost effective strategy designed to limit the costs associated with exercising a call option. When a European call option is purchased, the present value of the strike price is ...
      Read More »

Articles Of Interest

Sponsored links
Hot Definitions
Partner Links
Suggested Definitions