Exercise 1.3. Consider two put options with the same expiration but different strikes, E1 and E2 (with E, E2). Formulate the conditions on their prices P, and P2 so that the PNL graphs of the two puts (both long) intersect. Justify your answer by drawing all possible types of the graphs' arrangement. Hint there are three arrangements (not counting the borderline cases) Exercise 1.4. One day, Alice and Bob observe the following option prices (assume no bid-ask spread and r 0): 95C@6.30, 105C03.10, 110C@ 1.00. Alice says that one can make some guaranteed profit by buying one 95C, selling three 105C and buying two 110C. But Bob says he read that writing (selling) call options exposes one to the risk of unlimited loss. Draw the PNL diagram for the spread suggested by Alice to see who is correct