Why Are Options on Individual Stocks Excluded from Section 1256 Treatment?

Options on individual stocks are classified as "equity options" and are specifically excluded from the definition of a Section 1256 contract. The intent of Section 1256 was primarily to provide a streamlined tax treatment for highly-liquid, broad-market contracts like futures and index options.

Options on single stocks remain subject to standard capital gains rules based on their holding period (short-term or long-term).