Reference current context when setting jQuery plugin options
(function ($) {
    $.fn.colourise = function (options) {
        var settings = $.extend({
            color: "black"
        }, options);

        return this.each(function () {
            $(this).css("color", options.color);
        });
    };
})(jQuery);

<div data-color="red">
    This text should be red.
</div>
<div data-color="blue">
    This text should be blue
</div>
<div data-color="green">
    This text should be green
</div>

$(function () {
    // This feels a bit wrong to have to use a .each() here, but how else do we do it?
    $("div").each(function () {
        $(this).colourise({
            color: $(this).data("color")
        });
    });
});

$(function () {
    $("div").colourise({
        color: [get context of this "div" somehow].data("color")
    });
});

function getColor(){
return $.data( this, "color" );
}

$(function () {
    $("div").colourise({
    color: getColor
    });
});

(function ($) {
    $.fn.colourise = function (options) {
    var settings = $.extend({
        color: "black"
    }, options);

    return this.each(function () {
    var color = options.color;

    color = typeof color =="function" ? color.call( this ) : color;
        $(this).css("color", color);
    });
    };
})(jQuery);