Since the knowledgeable gurus haven't answered you, I will share a little with you. You can sell 1 contract covered call for each 100 shares of an optionable stock you own. When you sell a contract you immediately receive a cash premium, deposited to your portfolio account. At that time you have agreed to hold those shares available for sale at a specific price until the third Friday (actually Saturday) of a specific month. This means that those shares can't be traded by you until the option closes either by being bought at your price, which you receive in addition to the premium you already collected, or until the option expires due to the calendar limit.
Your risks are 1): The the stock may tank, and you are prevented from selling until the time limit is up; or 2): The stock my zoom, but you will not benefit beyond the price you agreed to in the option contract.
A premium for a next-month contract is frequently between 1 to 5% of the value of the stock, and can make a nice little income for a stock that is not overly volatile. Such a stock can be contracted out each month producing an income stream on an otherwise dead issue.
When selling a contract you can use either a market or a limit order for the price of the premium you will collect. The details of the bid/ask for premiums on optionable stocks is available from www.CBOE.com, and from many brokers.
SDinvest...Nuf nailed Covered CALLs for you, with two additional details...
Selling covered CALLs is usually done to protect a profit, on an issue that's popped up a bit from your BUY-in...NOT on one that's below your BUY-in price, because otherwise you'd be locking yourself into a LOSS...
EXAMPLE: Say you'd bought SBLU in January at $5.75, and it goes to $8...you'd SELL the March $7.50 CALL for a premium of ~$1, locking in a minimum $1 profit if it expires under $7.50... Maximum profit if it expires above $7.50 of: the $1 premium, + the difference between BUY and SELL prices, ($7.50-$5.75 = $1.75) = $2.75 per share profit...approx 40%...!
Additionally, you don't have to wait until expiration...continuing the example, if you HAD sold the $7.50 March CALLs in February for $1, you could buy them back now for a fraction, closing the deal...(tho not really advisable, since SBLU looks like it'll close below $7.50, on March 16)...
I was happy to let someone else answer your question but I'm sure it's no suprise that since duck brained leamonhead chose to dump a load of his vogelmist on the board, I couldn't sit silent. Like when I corrected him before on his bird brained scheme to sell in-the-money puts, it is nearly as feather headed to sell in-the-money calls.
Options have time value and intrinsic value. Using his example, a 7 1/2 MAR call on a stock trading at 8 has 1/2 intrinsic value due to the amount it is in-the-money, plus a certain amount of time value based upon the number of days until expiration(time), the current interest rate (time value of money), any dividends to be paid and the stock's volatility(theoretical number derived from the historical magnitude of price swings of the stock along with market demands which affect the chances of the stock moving twords or away from the option's strike price). The Black-Scholes formula is the most commonly used method in taking each of the above variables and calculating theoretical options pricing in case you are interested in researching the finer details.
The point of all this is to understand that the goal as the covered call option writer is to sell time value, not intrinsic value and it's used to generate income, not to "protect a profit" (that's what puts are for). Like with crackercoot's earlier scheme of selling in-the-money puts, selling in-the-money calls just transfers the intrinsic value out of your left pocket and into your right. You've essentially, and quite literally, sold yourself short. Meanwhile, you're still bearing the risk and burden of holding the stock long after you've already sold off a portion of it's current value as well as having eliminated any chance of participating in any upside gain (the whole point of assuming the risk of holding a stock long in the first place). If you're bearish on a stock (you think it may close at or below a currently in-the-money strike price) then sell the stock. If you want to lock in a profit, buy a put. If puts are too expensive, you create a synthetic put by selling the stock (or selling stock short), and buying calls. Don't sell in-the-money covered calls unless it's part of a larger hedging strategy outside that of normal covered call writing or for realising a partial gain in special circumstances which preclude you from immediately selling stock because of special tax or account maintenance reasons, lockout periods, collecting dividend payments or holding on to voting rights.
Options can be a very useful tool for the stock investor. To learn the right way to use options, ignore beak flappin' cracker fool and check out "Options for the Stock Investor" by James Bittman and "Sure Thing Options Trading" by George Angell (older book, may be harder to find, but worth it).