The covered call strategy requires selling a call option while simultaneously owning shares of the underlying. Generally, the number of shares that one owns to employ the covered call strategy is 100.... This number varies based on the number of shares the option written allows the buyer to control. This strategy can be utilized to generate income while owning the underlying stock.
If, at expiration, the price of the underlying security is below the strike price of the option, then the stock owner keeps the premium generated by selling the option and the underlying shares.
If, at expiration, the price of the underlying security is equal to the strike price of the option, then the maximum profit is generated. The stock owner keeps the stocks they own and the premium generated by selling the option.
If the price of the underlying secutiy is above the strike price of the option, then the the writer of the call option keeps the premium generated by selling the option. In most instances, the buyers of the call option will choose to exercise the option. The option is generally automatically exercised if it is even $.01 in the money (above the strike price), but options buyers can ask their broker to notate "do not exercise" if they wish. This means the option seller will have to sell shares of the underlying to the option buyer at the strike price even though the current price of the underlying is above the strike price.