How Does the Mixed Straddle Election Relate to Section 1256 Contracts?
A mixed straddle involves holding at least one Section 1256 contract and one non-Section 1256 position (like an equity option) that offset each other. The mixed straddle election allows a trader to choose how to treat the combined gain or loss, often to avoid the complexities of applying different tax rules to offsetting positions.
Common elections include the mixed straddle account or netting the gains and losses.
Glossar
Mixed Straddle Account
Definition ⎊ A mixed straddle account designates a specialized trading account containing both regulated futures contracts and non-regulated options or other financial instruments.
Section 1256
Standardization ⎊ This specific tax code provision mandates special treatment for certain regulated futures contracts, which can apply to crypto derivatives traded on designated exchanges under specific conditions.
Mixed Straddle
Combination ⎊ This describes a strategy where a standard straddle (long call and long put) is combined with an offsetting position in the underlying asset or a related derivative instrument.
Section 1256 Contract
Definition ⎊ This classification identifies specific exchange-traded futures and certain non-equity options that are subject to special tax accounting rules under the relevant tax code section.
Mixed Straddle Election
Construction ⎊ A Mixed Straddle Election represents a simultaneous purchase of both a call and a put option, differing from a standard straddle by utilizing distinct strike prices ⎊ one above the current asset price and one below ⎊ creating a non-parallel risk profile.
Straddle
Strategy ⎊ A straddle is an options trading strategy involving the simultaneous purchase or sale of both a call option and a put option on the same underlying asset.