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market price for delivery of the commodity will result in changes
in the value of an anticipatory contract for delivery in that
month. An anticipatory contract holder is described as being in
a “naked” position when he bears the unalloyed risk of changes in
the market price for delivery of the commodity (market risk).
A “straddle”, in its simplest terms, is the simultaneous entry
into two anticipatory contracts with respect to the same
commodity; one is a long contract, to buy a given amount of the
commodity for delivery at a specific time, and the other is a
short contract, to sell the same amount of the commodity for
delivery at a different time. A straddle reduces market risk
because, as the value of one leg decreases, the value of the
other leg increases. Because the legs are for deliveries at
different times, the value changes will not necessarily be
exactly offsetting. There is, thus, the potential for profit or
loss in a straddle.
D. Replacing a Leg
A participant in a straddle may replace one leg of the straddle
with another contract of the same kind (i.e., long or short) for
a different delivery date (such replacement of one leg being
referred to as a switch). For example, here, in Stoller v.
Commissioner, T.C. Memo. 1990-659, with respect to the
cancellations in question (except for one group, the
November 25th group), we found that the partnership wished to
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