A covered call is a call an investor sells on a stock he already owns.A covered call limits the potential for gains in an investment. But it provides immediate income as well as protection against a loss. Investors use covered calls when they have a short-term neutral view about an asset and want to generate income from it. Suppose an investor owns 100 shares of TSJ Sports Conglomerate, which is trading at $25 per share. The investor likes the stock’s long-term prospects, but thinks for now it will trade flat. The investor sells a call option on 100 shares of TSJ at a strike price $26. If TSJ shares trade flat, the option will expire worthless, and the investor keeps the premium he received from selling the call. The option also expires worthless if TSJ shares fall, and, again, the investor keeps the premium. If TSJ shares rise above $26, the buyer will exercise her option. The investor must sell his 100 shares at $26 to the buyer. The investor keeps the premium, but his profit on TSJ is capped. The call buyer purchases the seller’s shares of TSJ at $26, and sells them on the open market at the higher price.