Step 1: Red cotton bug feeds above ground, on bolls and seeds, not in soil.
Step 2: So soil-applied insecticide does not reach it, Statement (I) is wrong.
Step 3: Its whole life cycle, feeding and egg-laying, stays on the plant, not the soil.
Step 4: So Statement (II) is also wrong.
\[ \boxed{\text{Option (2): Both statements are incorrect}} \]