A covered call is an option strategy with which you sell a call against shares that you already own. Here is how covered calls work. Essentially, if you’ve got a stock in your portfolio that you wouldn’t mind selling for a certain price, you could then write a call against it.
For writing such a call, you would receive the amount of an option premium from the person who buys your options contract. For example if you owned XYZ and wouldn’t mind selling at $50 a share and the January Call option was $10. You would be paid $10 to give someone the option of buying your shares from the time you sell your call contract to January at $50 a share.
Do covered calls can be very profitable form of investing. It for example you were already had in mind to sell a stock at a specific percentage price target of say 10% or 20%, then you could just lock in that profit ahead of time using a covered call. The downside is that for long-term investing, you could miss a big upside of a stock if it makes a large move upward in a short amount of time. If the fundamentals of a stock were to turn negative and you wanted to sell, you would then have to buy a call option so that you could then sell the stock if you ever needed to.