Issues with Calls
I have been recording the exercised call as a zero dollar sale and the purchase of the underlying security as a buy at the strike price. But if the sale occurs in a following year, Quicken capital gains for the years are off since the "loss" associated with the premium of the exercised call is in one year and the gain or loss for the security is in the following year. Of course the brokerage reports it correctly as all associated with the security but it renders the capital gains reports in quicken useless.
Should I record the exercised call as a sale at the purchase price to generate a zero gain transaction then record the purchase of the underlying transaction as a purchase at the strike price PLUS premium per share to generate the higher cost basis? How will that impact the reports on portfolio returns?
Note: This conversation was created from a reply on: Exchange-Traded Call Option Planning To Exercise.
Comments
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"Should I record the exercised call as a sale at the purchase price to
generate a zero gain transaction then record the purchase of the
underlying transaction as a purchase at the strike price PLUS premium
per share to generate the higher cost basis? "
That strikes me as the right way of doing this. The call transaction - buy a call, exercise the call - isn't an income/loss event and your accounting would reflect that and transfer the call's cost to the strike price purchase, correctly.0 -
Similar situation. Sure wish Quicken would fix their options handling...
What if the exercised call is closed (cover short) at zero value, and the original premium proceeds amount applied to the stock as Return of Capital? That updates the stock's cost basis alright - is anything else messed up?
It is just mentally easier for me to follow what is happening that way.
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If I'm following what you're saying here - and I may not be - that doesn't seem correct. If you sell a call and it expires worthless then you have a reportable gain on that transaction and the IRS is going to expect to see it on your income tax return.Lost Trader said:Similar situation. Sure wish Quicken would fix their options handling...
What if the exercised call is closed (cover short) at zero value, and the original premium proceeds amount applied to the stock as Return of Capital? That updates the stock's cost basis alright - is anything else messed up?
It is just mentally easier for me to follow what is happening that way.
The proceeds from your original sale certainly are not a return of capital. Returns of capital come from the company that issued the stock, not the gambler that bought the call and lost.0 -
If it expired worthless, then it was not exercised... :-)Lost Trader said:Similar situation. Sure wish Quicken would fix their options handling...
What if the exercised call is closed (cover short) at zero value, and the original premium proceeds amount applied to the stock as Return of Capital? That updates the stock's cost basis alright - is anything else messed up?
It is just mentally easier for me to follow what is happening that way.0 -
But it is beginning to feel wrong anyway... RtC will change cash balance which the closed option position did already. I do not see another way to adjust cost basis cleanly in Quicken.
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It's not a return of capital in a legal sense. If you want to think about it as a "reduction of my investment in Company X" that's fine, you're free to do so. But for tax purposes you report your gain.Lost Trader said:But it is beginning to feel wrong anyway... RtC will change cash balance which the closed option position did already. I do not see another way to adjust cost basis cleanly in Quicken.
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