Stock Option Accouting?

[Roland Roberts]

-----BEGIN PGP SIGNED MESSAGE-----

Is there anything in GnuCash to let me track stock options? My
employer has started an incentive program and I'd like to keep track
of it. I could set it up as an ordinary stock account, but there are
some obvious differences which would be hard to keep track of, like
the strike price on the option, whether or not it is exercisable and
whether it has been exercised---at which point it goes into a stock
account is is no longer an option.

The plan they have is roughly like this:

25% vests on the first anniversay of the grant
6.25% vests each quarter thereafter


regards

roland
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PGP Key ID: 66 BC 3B CD
Roland B. Roberts, PhD RL Enterprises
***@rlenter.com 6818 Madeline Court
***@astrofoto.org Brooklyn, NY 11220

[Derek Atkins]

Nope, GnuCash doesn't track options. Part of the reason is
that options aren't worth anything until you actually exercise.
Once you exercise, then you actually have some stock....

-derek

Post by Roland Roberts
Is there anything in GnuCash to let me track stock options? My
employer has started an incentive program and I'd like to keep track
of it. I could set it up as an ordinary stock account, but there are
some obvious differences which would be hard to keep track of, like
the strike price on the option, whether or not it is exercisable and
whether it has been exercised---at which point it goes into a stock
account is is no longer an option.
25% vests on the first anniversay of the grant
6.25% vests each quarter thereafter
regards
roland
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PGP Key ID: 66 BC 3B CD
Roland B. Roberts, PhD RL Enterprises
_______________________________________________
gnucash-user mailing list
http://www.gnucash.org/cgi-bin/mailman/listinfo/gnucash-user

[chris]

This is very simple, but it has worked for me so far.

I use GnuCash. I trade options (minimally), too, but only 'sell to
open' (write covered calls I believe is the correct terminology). i.e.,
I bought 100 shares of XYZ; I can now 'sell to open' an option
contract. As soon as the contract is sold, the money for the contract
shows up in my account, minus commisions. When the contract expires and
the price is below the strike price I sold at, I keep my shares and the
money that used to buy my option contract.

The way I track this in GnuCash (totally hacked together, I am sure).

1) Create stock account for XYZ company
2) Create sub-account of XYZ company for my options (calls)
3) Buy XYZ stock, put 100 shares in XYZ account
4) Sell a contract on my XYZ shares, enter a transaction in the XYZ
options account that transfers the 100 shares from XYZ stock to XYZ
options, with the price of the contract and commisions.
5) When the contract expires or I buy it back, create a transaction in
XYZ options account that transfers the 100 shares back to XYZ stock from
XYZ options.

If I have a contract out, GnuCash then shows how many shares of XYZ I
have available to sell, write more calls, etc... i.e., if I had 100
shares of XYZ and had a call contract written, GnuCash shows that I have
0 shares in XYZ stock and 100 shares in XYZ options.

This method has worked nicely for me so far.

Chris

Post by Derek Atkins
Nope, GnuCash doesn't track options. Part of the reason is
that options aren't worth anything until you actually exercise.
Once you exercise, then you actually have some stock....
-derek

Post by Roland Roberts
Is there anything in GnuCash to let me track stock options? My
employer has started an incentive program and I'd like to keep track
of it. I could set it up as an ordinary stock account, but there are
some obvious differences which would be hard to keep track of, like
the strike price on the option, whether or not it is exercisable and
whether it has been exercised---at which point it goes into a stock
account is is no longer an option.
25% vests on the first anniversay of the grant
6.25% vests each quarter thereafter
regards
roland
--
PGP Key ID: 66 BC 3B CD
Roland B. Roberts, PhD RL Enterprises
_______________________________________________
gnucash-user mailing list
http://www.gnucash.org/cgi-bin/mailman/listinfo/gnucash-user

[chris]

On Wed, 2003-0Corrections: After looking at GnuCash, I don't transfer
shares from the
stock account to the options account. I just sell shares from the
options account to start, so it shows -100 share for 1 contract. The
stock account never updates or changes the number of shares, whether an
option has or hasn't expired.

Post by chris
This is very simple, but it has worked for me so far.
I use GnuCash. I trade options (minimally), too, but only 'sell to
open' (write covered calls I believe is the correct terminology). i.e.,
I bought 100 shares of XYZ; I can now 'sell to open' an option
contract. As soon as the contract is sold, the money for the contract
shows up in my account, minus commisions. When the contract expires and
the price is below the strike price I sold at, I keep my shares and the
money that used to buy my option contract.
The way I track this in GnuCash (totally hacked together, I am sure).
1) Create stock account for XYZ company
2) Create sub-account of XYZ company for my options (calls)
3) Buy XYZ stock, put 100 shares in XYZ account
4) Sell a contract on my XYZ shares, enter a transaction in the XYZ
options account that transfers the 100 shares from XYZ stock to XYZ
options, with the price of the contract and commisions.
5) When the contract expires or I buy it back, create a transaction in
XYZ options account that transfers the 100 shares back to XYZ stock from
XYZ options.
If I have a contract out, GnuCash then shows how many shares of XYZ I
have available to sell, write more calls, etc... i.e., if I had 100
shares of XYZ and had a call contract written, GnuCash shows that I have
0 shares in XYZ stock and 100 shares in XYZ options.
This method has worked nicely for me so far.
Chris

Post by Derek Atkins
Nope, GnuCash doesn't track options. Part of the reason is
that options aren't worth anything until you actually exercise.
Once you exercise, then you actually have some stock....
-derek

Post by Roland Roberts
Is there anything in GnuCash to let me track stock options? My
employer has started an incentive program and I'd like to keep track
of it. I could set it up as an ordinary stock account, but there are
some obvious differences which would be hard to keep track of, like
the strike price on the option, whether or not it is exercisable and
whether it has been exercised---at which point it goes into a stock
account is is no longer an option.
25% vests on the first anniversay of the grant
6.25% vests each quarter thereafter
regards
roland
--
PGP Key ID: 66 BC 3B CD
Roland B. Roberts, PhD RL Enterprises
_______________________________________________
gnucash-user mailing list
http://www.gnucash.org/cgi-bin/mailman/listinfo/gnucash-user

_______________________________________________
gnucash-user mailing list
http://www.gnucash.org/cgi-bin/mailman/listinfo/gnucash-user

[francis cornut]

Hi everybody,
I just would like to add a few comments regarding this earlier discussion.
Options, including stock options, are indeed a conditional instrument, however they can be accounted for.
In fact, according to new IASB Standards corporates will have to account for them at fair value from January 2005.
It makes sense that somebody holding stock options would like to know about their value, unfortunately there is no official price available on the market,
and the fair value even if as noted can be obtained from models, the difficulty is to feed the models with the right parameters.
In pure gnucash terms, I think (but I haven't checked) you could use the asset/stock class, derive it and add:
- conditional instrument (boolean)
- underlying instrument (a stock)
additional info but not necessary for accounting purpose:
- call/put
- european/american (condition exercise)
- strike price
- maturity
You also need to add a function that would allow to abandon the option if out of the money (but this is just booking a transaction at 0)
or exercise the option which would impact a cash account (credit or debit strike price amount) and credit or debit your stock portfolio.
In terms of remarking the position, if the option is traded on a listed market, you usually can get settlement prices published by the exchange.
If it is not, then you have to calculate your own estimate of fair value (see my website www.derivexperts.com/bs_model.html for the Black and Scholes code).
Don't forget that options where designed so that you can as well as buy it, sell it which means you can easily be short (negative position).
I hope this helps
Fr6

[p***@mindspring.com]

In a message dated: Wed, 25 Jun 2003 19:25:09 +0200

Then, add the number of your stocks and the price in the account.

You just have remember that when looking at the various balances and
reports that all your Assets are now inflated by
"the number of options X strike price" for each set of options you
have, but don't really own.

And, when excercising these options, you need to remember to transfer
the cash with which you're purchasing the options to correct account
and the options which are now shares into a different account.

In short, it can be done, but it's going to be tedious and confusing
to do it right. If you employer has an agreement with a
brokerage which is managing this for you, they likely have a web site
you can log into to view all this information. Just use that, then
update GnuCash only when an actual transaction takes place.
--
Seeya,
Paul
--
Key fingerprint = 1660 FECC 5D21 D286 F853 E808 BB07 9239 53F1 28EE

It may look like I'm just sitting here doing nothing,
but I'm really actively waiting for all my problems to go away.

If you're not having fun, you're not doing it right!

[Derek Atkins]

Arnaud,

Post by Roland Roberts
Is there anything in GnuCash to let me track stock options? My

Yes.

I dont think you understand what "stock options" are..

First, create a normal asset account, which will contain all
stocks as subaccounts; define this account as a placeholder.
Second, create an account in it, of type stock, check get online
quotes, and modify the commodity, select new, and put the symbol
(code number) and type (defining place of the stock).

This works fine for normal stocks, but not options.

Then, add the number of your stocks and the price in the account.

There is no price on an option. An option isn't an asset.
An option is a "promise of an asset". GnuCash does not track
promises.

Arnaud.

-derek

[p***@mindspring.com]

Derek> GnuCash does not track promises.

And if it did, I'm sure we'd all be a lot wealthier ;)
--
Seeya,
Paul
--
Key fingerprint = 1660 FECC 5D21 D286 F853 E808 BB07 9239 53F1 28EE

It may look like I'm just sitting here doing nothing,
but I'm really actively waiting for all my problems to go away.

If you're not having fun, you're not doing it right!

[Linas Vepstas]

Actually stock options can be bought and sold. These are called derivatives
and Black-Scholes modeling is a way to price them. (Nobel prizes in
economics were awarded for this stuff.) This is rather

And the math is neat too. I once read a paper on stoch diff eq. on
drill breakage as a function of drill speed and pressure, vs. lost time
in salary to change the bits, scraped boards, etc. Seemed
pretty obtuse, until the last graph, which showed a savings of
$10K to $20K a month by changing the parms. I guess that can
pay for a resident mathematician on the assembly line ...

specialized financial mathematics and I believe access to actual trading
and pricing is very limited unless you work for one of the big investment firms.

You can trade 100's of options publically, you don't have to be a
big investor. They're listed on the wall street journal, traded
at the chicago board of options exchange.

-----
You know the story that black & scholes applied thier formula to all
of the options listed in the paper, and found a few that were way outta
line? They actually put money into it, and lost: turns out that
the two they invested in had just declared bankruptcy! Turns out
'fundamentals' is sometimes important.

--linas

[Arnaud Launay]

Post by Roland Roberts
Is there anything in GnuCash to let me track stock options? My

Yes.

First, create a normal asset account, which will contain all
stocks as subaccounts; define this account as a placeholder.

Second, create an account in it, of type stock, check get online
quotes, and modify the commodity, select new, and put the symbol
(code number) and type (defining place of the stock).

Then, add the number of your stocks and the price in the account.

Arnaud.