Options Accounting (1) Long Put/Call Expires

Nick0131

Old Topic apparently, with workarounds, but never fixed. A lot of permutations, but a few comments on simple scenarios:

(1) Buy a Put/Call. It Expire worthless. Broker sends an obscure message indicating the options expired and were removed. While obscure, the broker message is correct. There is no accounting transaction to be recorded. The option is simply removed. In Quicken there are two transactions: add shares, remove shares. Remove shares is really subtract shares. In the case of a Put or Call Buy, Remove works because it means subtract, which gets the job done. I think I have read people recommend recording a 'sale' of the put/call and never use 'remove'. Not sure why this is better.

Rocket J Squirrel

Quicken likes symmetry. If you open a position with Buy, you should close it with Sell. The transactions sent by brokerages to close option positions are not usually correct for Quicken.

To address your other post, if you open a position with Short Sale, you should close it with Cover Short. Always.

Often, you will "sell" or "cover" closed options for $0.00. That's well and good.

Nick0131

Thanks Rocket. While symmetry is nice, why not do it right. For assignments, expirations it makes no sense to me to have these type of rules: when you buy, you sell (to close). So, when you sell, you buy (to close)? No, you cover the short.

Do the software people at Quicken not understand this issue? It would be simple to fix. This is not a like to have, it is correcting an transaction the software does not perform correctly.

I only use Quicken for investment tracking and it is very good for that. This is the 1st thing I have run into that is just not correct. I had about 25 expired, covered options to clear up because I was tired of looking at them and it took way too long to fix. A good starting point would be to remove options automatically 3-days after expiration, like the brokerages do.

q_lurker

Forgive my ignorance, but I don't trade options.

My understanding -- if the option expires, you get nothing for your investment.  It counts as a capital loss for the value you put into the option = your cost basis.  Correct?

There is a difference in Quicken if your Sell the security (the Put Option) vs Remove the security.  Selling for $0 produces a capital loss as I outlined -- No proceeds from the sale less your cost = 100% loss and Quicken will show that on its capital gains report and related places.  Removing the security treats the capital gain/loss as $0, as if you removed it at cost, thus missing the loss value on the capital gains computations.

The short positions follow the same track I believe.  To get proper cap gains/loss treatment, your accepted Short Sale opening position needs a CvrSht to balance it.  Actually, in Quicken, you cannot Remove a short position.  An Add would balance the position, but in Quicken's processing, the Add would not actually cancel the short sale.  The CvrSht is required. 

All in all, the treatment of options is an adaptation from the treatment of stock holdings.  That is what lead to where we are today.  

Rocket J Squirrel

Rocket J Squirrel said:

To address your other post, if you open a position with Short Sale, you should close it with Cover Short.

Nick0131 said:

Thanks Rocket. While symmetry is nice, why not do it right. For assignments, expirations it makes no sense to me to have these type of rules: when you buy, you sell (to close). So, when you sell, you buy (to close)? No, you cover the short.

That's what I said. When you Sell Short to open, you Cover Short to close in Quicken. Expiration or exercise makes no difference to Quicken, which doesn't really understand exchange traded options. This is as close as it comes.

Jim_Harman

Nick0131 said:

 A good starting point would be to remove options automatically 3-days after expiration, like the brokerages do.

@Nick0131 I don't think Quicken can do what you are asking because it does not know when the options expire.