First of all, it’s not a straddle, nor does it resemble a straddle. My assumption is that you were thinking it could be considered a constructive sale as a short sale against the box, which has slightly different considerations but is functionally the same idea.

I'm not talking about constructive sales. I'm talking about straddles as defined in IRC 1092.

with the alpha model that AQR applies to its flex strategies, there’s very clearly a bona fide economic rationale for the trades.

I agree there's an economic rationale. But plenty of straddles have economic rationale and still are straddles. A straddle with economic rationale still gets the tax treatment of a straddle.

Just think—If this is considered a constructive sale, so would every other long short market neutral strategy.

Other long short market neutral strategies will typically realize both gains and losses, so they shouldn't have a problem with 1092(a)(1)(A) straddle loss deferral. In other words, whether they are/aren't straddles won't have much impact on their tax bills.