A covered call is an investment strategy where an investor holds shares of a stock and sells call options on those shares. By selling the call options, the investor receives a premium, which provides some income. This strategy is typically used when the investor believes the stock price will remain stable or rise slightly. If the stock price exceeds the strike price of the sold call option, the investor may have to sell their shares at that price. However, they still keep the premium received from selling the option. This approach can enhance returns but limits potential upside if the stock price rises significantly.