Question

what trading position is created from a long strangle and a short straddle when both have the same time to maturity? assume that the strike price in the straddle is halfway between the two strike price of the strangle

Answer 1

Long strangle: It is a neutral strategy in options trading that consist of  simultaneous buying of a slightly out-of-the-money put and a slightly out-of-the-money call of the same underlying stock and expiration date.

Short straddle: A short straddle consists of one short call and one short put, both having same underlying stock, the and expiration date.

So, a long strangle and short straddle with same time to maturity i.e., same expiration date will created a BUTTERFLY SPREAD

Butterfly Spread is a neutral strategy that is a combination of a bull spread and a bear spread. Given strike price of straddle is half between the two strike price of the strangle, the straddle costs more than the strangle. So combination of both will create a butterfly spread.

Also, the trader receives a premium as the straddle costs more than the strangle.