What is a buy-write?
In one line: A buy-write is a covered call opened in one order: you buy 100 shares and sell a call against them at the same time, for a single net price per share.
How it works
A Covered call has two pieces: 100 shares and a short Call option. If you already own the shares, you just sell the call. If you don't, you can buy the shares and sell the call as one order. That's a buy-write.
Most brokers let you enter it as a single ticket with a net debit: the share price minus the premium. If XYZ is $50 and the call pays $1.00, the net debit is $49.00 per share. The order fills both legs together or not at all.
Why one ticket instead of two:
- No gap between fills. If you buy shares first and the stock drops before you sell the call, the premium shrinks. One order removes that gap. See Legging in.
- One price to judge. The net debit is your break-even on the shares before anything else happens.
The buy-write is the "already assigned" half of the wheel strategy done on purpose. Some people start the wheel this way instead of selling a put first.
An example (hypothetical)
An illustration, not a trade idea. Made-up stock XYZ trades at $50. The 30-day $55 call bids $1.00. You enter a buy-write at a net debit of $49.00: pay $5,000 for shares, collect $100, net $4,900 out.
| XYZ at expiry | What happens | Result |
|---|---|---|
| $60 | Shares called away at $55 | +$500 + $100 = +$600 (the cap) |
| $55 | Called away, or call expires right at the strike | +$600 |
| $50 | Call expires; you keep the shares | +$100 |
| $49 | Call expires | $0 (break-even) |
| $42 | Call expires; shares worth $4,200 | −$800 + $100 = −$700 |
The last row is the one to see. The single order made the entry tidy. It didn't change what the trade is: owning 100 shares with a small cushion. A drop to $42 costs $700 whether you used one ticket or two.
Why it matters for sellers
The buy-write is mostly about execution. It saves the slip between two fills and makes the cost basis obvious. It doesn't change the risk, so the same questions apply as to any covered call:
- Would you own 100 shares of this stock at $49? That's what you're doing.
- Is the $55 strike a price you'd be glad to sell at? If not, pick another or don't sell the call.
- Is there an earnings date before expiry? A gap down hits the shares; a gap up caps you.
One practical note: when you enter the ticket, price it at the net mid and adjust slowly. A buy-write filled at a bad net price can give back the whole premium before the trade starts.
Questions
What is the difference between a buy-write and a covered call?
Same position, different entry. A covered call is often sold on shares you already own. A buy-write buys the shares and sells the call in one order. After the fill, they're identical.
How is a buy-write priced?
As a net debit per share: the stock price minus the call premium. If the stock is $50 and the call is $1.00, the net debit is $49.00, and that's your break-even on the shares.
Can I do a buy-write in a TFSA or IRA?
Covered calls are widely allowed in registered and retirement accounts, and a buy-write is one. Options permissions differ by broker, so check that yours allows the combined order in that account.
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