Covered Calls
Investors have the ability to "rent" out their shares using Call options. E.g If an investor was to buy 100 shares in XYZ company trading at $20, they could sell 1 current month Call option "At The Money" ($20). If the option premium was worth $1 per share the investor is effectively "renting" their shares for 5% return for that month. Using an at the money call in this scenario would provide 5% worth of protection to the investor, i.e the stock price can fall 5% before reaching the break even point.

Covered Calls are also known as Buy Write's, these can be placed with your online broker to allow you to simultaneously buy 100 shares and sell 1 call.

How Do They Work?
At expiry if the share price of XYZ was above $20 the option would be exercised and the shares would be taken out of the investors account. This is a good deal, the investor would have just make $100 ($1 x 100 shares) renting these shares for the month. Now buy back 100 shares and sell another call for the next month!

At expiry if the shares are worth less than $20, but more than $19 then the Call option would not be exercised, but the investor would have still made money! (break even is $20 - $1 premium = $19). In this scenario the investor can just sell another call for the next month!

If the share price was below $19 then the investor would loose the difference between the current share price and the $19 break even.

Aggressive or Conservative Strategies

Aggressive Strategy (In The Money Calls)

If the investor was to employ an aggressive strategy they could sell "In The Money" Calls on this share at $17.50 (or lower). This means the investor wants the stock to be taken out of the account and wants to limit the risk if the shares fall in value. But for the investor to still make that $1 income the option contract must be worth $3.50. In this example the investor will loose $2.50 per share selling them at $17.50, but bring in $3.50 of income the difference still being the $1 per share.

Using the aggressive strategy the break even price is now $16.50 ($20 - $3.50). Now the stock can fall 17.5% before the investor reaches the break even point. As long as the share price is above $17.50 at expiration the option will be exercised and the shares taken out of the account. If the share price is between $16.50 and $17.50 at expiration the investor will still make money, and if its less than $16.50 the investor will loose money.

Conservative Strategy (Out Of The Money Calls)

If the investor was to employ a conservative they could sell "Out Of The Money" Calls on this share at $22.50 (or higher). This means that the investor wants to keep the shares, or benefit  if they grow in value, but want to wear the risk of the shares decreasing in value. The investor may receive less than $1 for the premium, lets assume they still get $1.

In this example the break even point is still $19 ($20 - $1 premium), but if the shares were to increase in value the investor would still benefit from the capital growth up to $22.50. If the shares were to increase above $22.50 the option would be exercised and the investor would make a maximum of $3.50 ($2.50 growth + $1 premium). If the shares were between $19 and $22.50 the option would not be exercised and the investor would make between $0 and $3.49 per share. If the shares were worth less than $19 the investor would loose money.