Listed below are some key terms and their definitions. Don't worry about understanding all of these terms now. Read over them and then come back to them for reference later.
Covered Call - A covered call consists of the sale of a call while simultaneously owning the underlying stock. A call is an option contract which gives the owner the right, but not the obligation, to buy the agreed upon number of contracts (blocks of 100 shares) at a strike price, on or before the strike date.
Call - A call is a contract in which the writer agrees to sell the stock that the option contract represents to the buyer at a specified price, on or before a specified date. The buyer may exercise the contract at any time before the expiration date (strike date). The buyer also has the right but not the obligation to buy the stock that the option contract represents. Each option contract represents 100 shares of a stock.
Contract - A contract equals 100 shares of a stock. The seller will specify an exact number of contracts at the time he/she makes the covered call transaction. A covered call can only be done in contracts of 100 shares.
Buyer- For the right to the option, the buyer pays the seller a premium, which instantly becomes the property of the seller. The buyer can then purchase the stock from the seller for the strike price at any time up until or on the strike date.
Seller- The seller is the person who owns the underlying stock and decides to sell the option to the buyer. The sale is done per contract. The ratio is 100 shares per one contract. If the seller is not called out by the strike date, he/she will then own the stock outright. The seller receives the premium at the time of the initial covered call transaction. The seller never has to give up that premium.
Option/Premium- This is the amount the buyer must pay the seller for the option to buy the seller out at the strike price. This amount is paid immediately, well before the buyer must decide whether or not to buy the seller out.
Strike Date/Expiration Date - The third Friday of each month is the option expiration date. This date is also called the strike date.
Strike Price - The price the buyer has to pay to buy the seller out of his/her contract(s). This price is determined at the beginning of the covered call transaction and never changes. Up until shares hit $25, the strike price is set in increments of 2 ½. Anything over $25 is in increments of $5. However, there are some exceptions to the incremental pricing.
Called out - When the buyer exercises the option to buy the contract(s) of the seller, the seller has been called out. When the seller is called out, he/she no longer owns any of the shares.
"In the money" - A covered call transaction where the strike price is below the purchase price. For instance, someone could sell a $17 ½ call for a stock that is trading at $18. The premiums are higher for these transactions because the buyer has to pay for the intrinsic value of the difference between today's price and the strike price. In this example the intrinsic value is $.50 ($18-$17.50).
"Out the money" - A covered call transaction where the strike price is above the purchase price. For instance, someone could sell a $20 call for a stock that is trading at $19. This type of transaction allows for the seller to gain additional profit on the transaction. For example, the seller not only receives the option premium, but also profits on the difference between $19 and $20.
"At the money"- A covered call transaction where the strike price is at the purchase price. For instance, someone could sell a $20 call for a stock that is trading at $20. This type of transaction usually provides a very good return.
Buy-Write - It involves buying the stock and selling the call in the same transaction. It is a conservative<
Covered Calls 101 
