This is how covered calls work in a nut shell: you own 100 shares of a stock, let’s say Microsoft which you bought at $30. You sell 1 option contract against this stock giving someone the right to buy the stock for $30 at the end of the month. For selling this right, you receive a premium of $1.35 or one hundred and thirty-five dollars total since each contract represents 100 shares of stock.
The buyer of the option is banking that Microsoft stock will increase over the coming month and be worth more than the $30 strike price of the option contract. If it is, their contract will have value since for example, if the stock goes to $31, they now have the right to buy it at $30.
The seller of the option contract is focusing on the cash flow that the premium is delivering. In this case the seller received a 4.5% rate of return on their money or $135 for the $3,000 investment.
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