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.