This strategy requires that you first own a share, then you sell call options until it corresponds to an equal number of shares you own. You have thus "cover" for all the sold/issued call options with your own shares.
The strategy can generate income for investors who believe that the share price of the underlying option will not go much further to the upside in the time ahead.
It is important to know that you then reduce gains to the upside, and also have no particular safety to the downside if the stock starts to fall.
Make money while your stock consolidates
The income thus comes only from the sales of the options. You as the seller/issuer then hope and believe that the share you own will have a period of sideways movements, and thus want to capitalize on this. You are thus paid to "give away" a share of possible future upside.
The reason why most people choose to do this strategy "covered" is because they do not have to pay a potentially infinitely high sum to the investor who is on the "other side" of the trade. If you were not "covered" and the underlying share price had gone high above the "strike price", you could get quite large losses. See the picture below for illustration:
what is a covered call can one protect oneself with call a covered call investment with covered call
The most common reason why investors use a "covered call" strategy, is that they have already made a good profit on the stock they hold. They can then sell call options to get even more "secure" gains. It may be in cases where they are satisfied with the gains they have received from this share already. If the underlying stock continues to go "sideways", the investor can issue a new round of "covered calls" and earn even more on the shares, if they continue their sideways pattern.
The income you get for selling/issuing these options can be combined with buying OTM put options. This can help secure the gain you have already received from holding this stock earlier.
An imaginary example might be: You have a position in an index that has gone 15% during the year and you are relatively happy with the gain. You still want a little more profit and sell some call options. With this trade, you get 3% more returns. To ensure that you do not lose all the good gains you have had this year, you buy some OTM put options. These are paid with some of the "premium" you received for selling the call options. Let's say that these cost you 1.5% and ensure you a 12% gain over the year.
Thus, when this trade is executed, you have gained a 16.5% return, and secured a 12% gain for the year, regardless of how the stock market and the share price proceeds. As you can see, there is a lot you can do with options and there are a large number of strategies around this topic.