Evan, you got my number if you ever want to talk about this....
Covered calls work best in a tax deferred account because you don't have a reportable tax event. In a regular account, every time you sell a call or it gets called away, that is a taxable event for IRS purposes.
A call gives someone else the right to buy stock from you at a set price and a specific expiration date. As the seller of a call, you are like an insurance company and take in premium and someone else can take the stock from you up to a certain date. Using SPLG as an example.
SPLG was 61/share at the close today. You could buy 100 shares ($6100) and go 9 days out and sell a 62 call for $55. If it stays below $62, you keep the premium, then go to the next expiration period and sell another. In this case if the stock was about 61 next friday (8/16), the next month a 63-64 call would get you anywhere from $55-100. There is a metric called "Delta" which is the probablity the price of the stock will be at the strike price at expiration. I like to use the 20-25 delta which is a 20-25% chance the stock gets to or above your strike, 75-80% it doesn't... which is what I really want.
If above 62,. you get to keep the $55 and get an additional $100 for selling it at $62/share (62-61 purchase price). 155/6045 = 2.5% return for 9 days
Check out "mike and his whiteboard" on youtube. Really nuts and bolts stuff, very dry, informative content. Cool intro music at a minimum... :)
I disagree with him about best case scenario in the video. The best case is the stock runs right up to the strike price you sold. In the SPLG case 61.99 would be awesome as it wouldn't get called away, rinse and repeat as the option is worthless upon expiration.