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Stock Portfolio and Options Contracts Are Not A Straddle, IRS Rules
An insurer's portfolio contained a diversified portfolio of stocks as well as listed put options on S&P 500 index futures and call options on individual stocks. The insurer deducted losses from the option sales, taking the position that the options were not subject to Section 1092 straddle rules.
Disagreeing with an IRS revenue agent, the IRS ruled that the "substantially similar" standard would not be met with a diversified stock portfolio that acquired a regulated futures contract or an option on a stock index to hedge against general market risk. Thus, the portfolio did not meet the "substantial overlap" test, nor was there any relation between the call options and the put options.
TAM 200033004
Source: Investment News, October 2, 2000
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