Well, a stock is good for covered calls if you think it is going to go up or stay about the same in the short term.
Here’s an example. I"ll buy 100 shares of XYZ @ 25 dollars today. That will cost me $2500. Let’s say I buy the 100 shares @ 25 and then sell a $30 covered call for XYZ stock for December @ a premium of $1.00. Option premiums are quoted at a dollar figure which is multiplied by the number of shares. Thus selling a call @ 1.00 means I"ll get $100 for that call option. That then reduces my effective cost of the stock to $24.00 per share since I’m paying the $25.00 share price but also receiving the premium for selling the call option.
OK, what happens next?. Let’s say the stock goes up and is called away from me @ 30.00. I now have a profit of $ 600 (5 dollar per share increase plus the 100 I received from selling the call option.)
Lets say the stock stays between 25-29 per share. I"ll keep the premium I received from selling the call and I am free to write another call option after my December one expires worthless.
Of course, the stock could go down. But I’ve already received $100 which is mine to keep. I can then sell the stock (if I think it will continue to go down) or write another call option after the December one expires worthless if I think the stock will rise in the future.
In this example, I"m not including commission costs or any dividends that you might receive while holding the stock. Unless the stock is called away from you prior to the ex-dividend date, you’ll continue to receive dividends for any stocks you write covered calls on.