An investor writes the call and put options listed below on the same stock (with the same expiration dates). Graph the profit diagram of this straddle position.
95 call priced at $1.50
95 put priced at $3.50
a. If the stock price at expiration is $98, what is the Net Profit (Loss) on this position?
b. Using the information from the prior problem, which of the following statements is true? Select one:
a. The writer is hoping that the stock price is between $90 and $100 at expiration.
b. The buyer of the call option is hoping that the stock price drops below $95.
c. The writer yields a net profit if the stock price is below $90.
d. If the stock price is $95 at expiration, the writer has an incentive to not transact.