The whole idea of the Covered Call, is to find a stock that you like, willing to own, and accept the risk if something should happen. You have to do a few things first.
1) Do your fundamental analysis. In other words, look at the company, their financial statements, make sure that they are a company that can make money for the forseeable future, that their price to earnings ratio is good, and they aren't up to their eyeballs in debt. The point is, any time you go long in a stock, you should know all of these things.
2) Get to know your Greeks. Options variables are Greeks (Delta, Gamma, Theta, Vega and Rho). You don't need to know how to write a screenplay in Greek to get anywhere with options, but be aware, and even more important. Find out what the Implied Volatility of the stock is! http://www.intrepid.com/robertl/stock-vols1.html?q=~robertl/stock-vols1.html has a nice tool to tell you what the historical volatility of your stock is. Important. (Remember we want to sell high volatility, but on the flip side, it means a larger risk owning the stock).
3) Do a little Technical Analysis. Look at the charts. Have Yahoo! charts show you a 10, 40, and 200 Day Simple Moving Address. Is the price above any of these, or below? Look at the Oscillator, is the position over bought? Is it trending upwards, neutral or down (the covered calls work well with neutral and upward trending stocks)? And be sure to look at this on multiple time frames--1 year, 3 months, 5 days, 1 day. It makes a difference.
When you've done all of this, and you've found a stock you like the look of, and is selling for a good price, go long, and sell your options short. A good covered call should yield about 3-4% a month, which adds up over the course of a year. Be sure to keep your eye on them. The short call can offer some downside protection if things should go to far south for you.
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