I have a friend who have been debating with me about how I will actually lose money in the following scenario. 1000 Underlying stock price purchased at $1 a share. Then I write 10 $2.5 covered call for 3 month later and collect 10c each. Max profit if exercised above $2.5 eg. $3 = $2500+$100. From what how I understand it, if the exerciser exercises the contract above the strike price, he forgoes all of the contracts value. Right? So, the above is my gain. However, my friend thinks that if I am exercised above the money, then I will have this scenario: Max profit if exercised above $2.5 eg. $3 = $2500+$250- the increase in value of the option I wrote (eg. option now worth 50c). According to him, I lose money because my profit is now $2500+100-400. Can you guys please tell me who correct here. I was told by two expert option traders my friend is wrong, but I would like to verify with you guys. Thank you.