Skip to content
GetProfitable
Search
Dictionary

Mixed straddle election

US elections that coordinate taxation when a straddle contains both Section 1256 contracts and ordinary positions, preventing mismatched timing and character. United States.

A hedge combining index futures with individual equities creates a mixed straddle: one leg is marked to market under section-1256 while the other is not, so without relief the timing and character of the two legs diverge.

Three routes exist: electing out of Section 1256 treatment for identified positions, electing straddle-by-straddle identification, or using a mixed straddle account with a formula netting daily gains and losses. Each has its own filing mechanics and deadlines, and some must be made by the day the straddle is established.

The elections are unforgiving about timing, which is why traders running hedged books involving futures typically set them up with an adviser before the first trade rather than at filing time.

General information for the United States, not tax advice. Rules change and depend on your circumstances; take professional advice.

Related: straddle-rules, section-1256, sixty-forty-tax-treatment, form-6781, constructive-sale

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Payoff of a long straddle at expiryA V shape with its point at the strike and both arms rising through zero as the price moves away.Profit / loss per share08090110120Profit if the move is big enough, in either directionStrike 100Breakeven 92Breakeven 108Max loss 8 — both premiums, if it finishes at 100Underlying price at expiry
Long straddle: payoff at expiry. A 100 call and a 100 put bought together for 8 make a V. A quiet market that ends near 100 costs the whole 8; the position only turns positive once the price finishes below 92 or above 108, whichever way it goes.

Educational only, not advice. Spotted an error? Post in Site Feedback.