Maximum profit of a covered call exercise, profit, price, simple, please

pimpineasy

Given S0(stock price), C0(call premium) and X(exercise price).

What is the maximum profit of a covered call?

Can you please give a simple interpretation, or an easy way to memorize it?

Windjam

you just bought a stock S0 ( microsoft)
you write a call option on it and pocket the premium C0 ( sold to your brother in law)
all of a sudden google annouces it will buy microsoft and fire steve ballmer immediately
microsoft rallies
as soon as it hits the strike price your lousy brother in law comes grinning and exercises call at strike price

thats the best case scenario right

in which case u sell the stock to your brother in law for X plus earlier Call premimun C0
less the cost paid for S0

X-S0+C0 --- Max Profit

you cant remember it this way or cp's then i dont know mayne

Roflnadal

no
covered call has upper limit for profit

Charles