A covered call pairs a short call option with 100 shares of the underlying stock held in the same account, which is what makes it "covered": the seller already owns the shares that would need to be delivered if the option is exercised, so there is no margin or naked short exposure involved. The premium collected is paid up front, but it comes at the cost of capping the position's upside at the strike price for the life of the contract. Longer-dated calls pay more premium but lock in that trade-off for longer, while shorter-dated calls (a week or two out) pay less per trade but can be rolled more often. Because premium compensates for risk, more volatile stocks generate significantly more covered call income than stable, low-volatility names. Covered calls are widely used as an income strategy on positions already held for the long term, and are generally permitted in tax-advantaged accounts like a TFSA since the position is backed by shares rather than margin.
