Buy-Write

Ok, this is not "buy-right"...like, wait for the squeezably soft Charmin to go on sale at Safeway and then buy it right, i.e. at a 4% discount, with Dad filling up the back seat and trunk with 500 rolls, mumbling that you're all set now for any form of Thai food the world might throw at you.

No. Buy-write is a trading strategy in options where an investor buys a particular stock, and at the same time sells a call option on the stock (an option to purchase the stock at a later date). The way the investor makes money is from the sale of the option premium, and she incurs less risk because it's covered by the value of the stock.

The price of the option should be higher than what the investor paid for the stock, but not too much higher. Otherwise, if the current market price of the stock is lower, the value of the option premium will go down.

The best possible situation is if the stock does not go up in the short-term, but will be higher in the long-term. An example of how this could work is if a hopeful investor decides that Make Money Later, Inc. might make some money in the long-term rather than the short-term, since its product set is fairly new to the market. So he buys 200 shares at its market price of $20 per share. Since he doesn’t expect the price to go up much in the short-term, he also writes a call option for Make Money Later at an exercise price of $22.50. If Make Money Later stays under $22.50, the investor will simply keep it. If the price goes above $22.50, the investor will have to sell his shares to the option holder for $22.50. If the market price is now $24.00, the investor loses out on the additional profit, but it’s not money out of his pocket, just an opportunity missed.