Della doesn't have enough money to buy her husband a valuable Christmas present, which motivates her to cut and sell her beautiful locks of hair for twenty dollars. Della ends up using the money to purchase Jim a new watch chain for his valuable gold watch, which is a family heirloom that has been passed down through generations. In a classic example of situational irony, Jim sells his valuable gold watch to purchase a set of bedazzled combs for his wife, which she can no longer use because she cut and sold her hair. Situational irony is a literary device that occurs when an outcome is completely opposite than what the audience initially expected. The situational irony occurs when both Della and Jim sell their most precious possessions to purchase valuable Christmas gifts that cannot be used or enjoyed. Jim cannot use the valuable watch chain because he no longer owns a watch and Della cannot use the combs because she has no hair.

Irony can be defined as the expression of one's meaning by using language that normally signifies the opposite, typically for humorous or emphatic effect. In "The Gift of the Magi" we're presented with an example of what's called situational irony. This is a situation in which actions have an effect that's the opposite of what was intended. Let's apply this definition to events in "The Gift of the Magi."

Both Jim and Della want to buy each other the perfect gift: Jim buys Della some combs for her pretty hair; Della buys Jim a chain for his watch. But in order to buy their gifts Jim had to sell his watch and Della sold some of her hair, so the gifts they've bought for each other are now useless. Jim and Della's actions have had the opposite effect of what they intended, hence the situational irony.