Portfolio question - re Options

[Charles Day]

On Wed, Feb 25, 2009 at 1:13 PM, David Ryder <davaweb at bigpond.net.au> wrote:

> 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.
>

Sounds fabulous! As a frequent user of options, I'd love to see this too.
However, there are more fundamental problems to fix before we can get there.


>
> 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 was not suggesting that you don't enter the sale, just that it could be
entered as similar to a short sale in which the cash received is not income,
just an asset (the cash) balanced by a liability (the option). But if the
ATO considers it income at write time, then I guess that's how you'd have to
do it.


> 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.
>

Unfortunately the portfolio features are still pretty basic.


>
> >
> >
> > 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
>
>
-Charles