Portfolio question - re Options

[David Ryder]

On Tue, 2009-02-24 at 20:32 -0800, Charles Day wrote: 
> On Tue, Feb 24, 2009 at 6:54 PM, David Ryder <davaweb at bigpond.net.au>
> wrote:
>         Hi,
>         
>         I run a business am looking at the possibility of combining my
>         Portfolio
>         into my gnucash accounts and using just gnucash for Portfilio
>         Management. I have some questions and will start with the
>         first - a
>         trader, yes, but an accountant I certainly am not!
>         
>         I trade daily in Options. To me this is Income and I would
>         like to
>         post under Income:Options as Stock entries - can I? They are
>         not assets
>         in my case but I don't want to confuse gnucash. All the
>         documentation I
>         have found says they should be "Assets".
>         
>         They would be posted to Liabilities:account-name2. 
> 
> 
> GnuCash doesn't have the concept of options or underlying,
Pity - Ideally, I would like to see a pop-up box as in Transfers) where
one enters data in boxes:
Company
Option series
expiry date
transaction date
Type (Call or Put, Buy to open, buy to close, Sell/write to open, , sell
to close, Expired etc.)
Shares per Contract
No of contracts
Price per share
gnucash calculation of contract total
Fees
Tax (setup chooses GST/VAT or whatever)
Total
(the above is a guide)
and post to the pre-chosen option account.

At the moment I do all this in an external Portfolio Manager but
entering again into gnucash is just extra work.

>  but you can just use a "stock" account type and pretend that one
> "share" is one "contract". 
> It sounds like you are short options (writing options).

Yes - I write options.

> You  "stock" account type would be created as a child of either an
> asset or liability account. Personally I would probably use an asset
> account with a negative number of contracts rather than a liability
> account with a positive number of contracts. I would hope that either
> would work, however someone please speak up if portfolio reports
> require the accounts to be assets for some reason.
> 
> 
> When does an income account come into the picture? I would assume when
> selling an option, the premium sits around as an asset until
> expiration or exercise, and then you record the difference as income
> when you go to zero out the number of contracts held. Or are you
> trying to do it some other way?

It is regarded as income by the Tax Office. Also, every trade has to be
entered - somehow.

I have tried your suggestion but it is more cumbersome than the method I
use at the moment where I treat option trades as income items without
trying to open and close each option individually. This is not what my
Accountant and the Tax Office want nor good for tracking but I guess I
have to work round that until gnucash is more advanced in Portfolio
Management.

> 
> 
> Essentially it is the same as doing a short sale of stock;
Ouch! Yes in one sense but definitely not in another :-(

>  there is the sale and then, later, the cover. The difference is that
> the price paid to cover will be zero if the options just expired
> worthless.
> 
>         
>         Is this a problem, please?
>         
>         Thanks,
>         
>         David 
> 
> 
>  -Charles