Covered Call is an options strategy where an investor holds a long position in an asset or stock and writes (sells) call options on the same asset. This is also known as a "buy-write" strategy if this stock is purchased simultaneously when writing the call. Usually the stock is held in the same brokerage account from which the investor writes the option call.
This strategy is used when investor has neutral to bullish overview of underlying stock. Although they believe it has bullish overview in long term, investor also believe it will only have limited price change during the contract life or short term. So to gain additional income they sell call option.
This strategy can only offer limited protection from a decline in stock price and also limited profit when stock increase in price because it will need to cover the option. Investor can also get the benefits of underlying stock ownership, like dividends and voting rights.
To summarize it, covered call has limited profit and substantial loss probability. Maximum profit will happen if the price of stock you own is at or above the call option's strike price. Substantial loss will occur when stock price continues to decline with the written call expires. You can calculate your loss as the start stock price less its current market price, less the premium received from the sale of call option. Any loss from the stock is offset by the call option premium.
This strategy is often considered as conservative strategy. But this is not true. To have a profitable covered call strategy, investor need to guess correctly that share values will not drop significantly. I can say that this strategy is very dangerous because if stock sinks you could lose many money. So use this strategy when you are very certain that the price won't move a lot.
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