Response to the following questions:
1. How does the price of an option and the exercise price affect the minimum price that the underlying can be sold for or the maximum price that the underlying can be purchased for?
2. Suppose an investor bought both a call option and a put option on an asset. Both options have an exercise price of $50 and both options have an option premium of $5.
a. Draw the profit-loss diagram for each option considered individually.
b. Draw the profit-loss diagram for the strategy that involves buying both options.
c. What is an investor with this combination of options hoping will happen to the price of the underlying asset?