Exchange-Traded Call Option Planning To Exercise

Leon Pink

I have an Exchange-Traded Call Option that I will be exercising for the underlying Stock. When I purchased the Call I recorded as a Buy and adjusted the number of share to equal the shares it allowed me to purchase. Now I plan on exercising the Call for the Stock. How do I record it in Quicken and adjust my cost basis? I have the 2017 Home & Business version.

K.O. (Win-Premier)

In situations like this where I buy a XYZ $50 strike call for $1 I would sell the XYZ call for $0 and buy XYZ stock at $50.  Then I let the broker deal with the combined cost basis as they will have to report that to you on a 1099 at the end of the year.

If you're talking about how to attribute the cost of the $1 call to the common stock making your cost basis $51 (instead of $50 cost basis of common w/ $1 loss on the call) you can always buy the stock at $51 and delete the call (or sell the call for the price you paid - e.g. $1).  But doing this will make the transactions inconsistent with what your brokerage would show.

I do not know anyway in Quicken to transfer the cost of Call to the Common shares when you exercise while still keeping the transactions consistent with what the broker will show.  Maybe someone else has found a way.

Leon Pink

K.O. (Win-Premier) said:

In situations like this where I buy a XYZ $50 strike call for $1 I would sell the XYZ call for $0 and buy XYZ stock at $50.  Then I let the broker deal with the combined cost basis as they will have to report that to you on a 1099 at the end of the year.

If you're talking about how to attribute the cost of the $1 call to the common stock making your cost basis $51 (instead of $50 cost basis of common w/ $1 loss on the call) you can always buy the stock at $51 and delete the call (or sell the call for the price you paid - e.g. $1).  But doing this will make the transactions inconsistent with what your brokerage would show.

I do not know anyway in Quicken to transfer the cost of Call to the Common shares when you exercise while still keeping the transactions consistent with what the broker will show.  Maybe someone else has found a way.

Thanks K.O., I appreciate your input. 

jr7107

This is not tax advice but a suggestion for cost basis presentation. You could "return the capital" of the option by the underlying security for the value of the purchase, then sell it a zero price generating no gain/loss. Use the returned capital (option premium) and the exercise price to execute a purchase.

On a call exercise and purchase, my understanding is that it would be as example:

Return capital $3 x 100 shares with a $45 exercise price.
Exercise option, and sell in Quicken for zero/zero cost basis and no G/L generated.
Cost basis would be $45 + $3, or $48 per share, execute a purchase of the shares.

But shorter version for Q, could also just ignore the options transaction (as KO noted above), and record the exercise only with the proper cost basis. It would mess with your cash balance until the transaction settled.