How to track options trading in GnuCash

Question

I recently started experimenting with a bit of stock trading on the side – put aside a bit of money, small enough I could afford to lose it entirely, in an ETrade brokerage. I've been keeping my own accounts in GnuCash for a few years, and adding stock trading there wasn't hard.

Recently, though, I sold some covered calls and then realized I didn't have a good way to keep track of them in GnuCash. The best I could think of – add a new "security" for each new type of option – is extremely awkward and would result in a rapidly-increasing set of new security types and accounts, any one of which will only ever be used for a few weeks at most.

Does anyone have experience trying this? I'd almost even be willing to accept the loss of detail and abstract it all away in significantly fewer accounts and asset types, except I'm not sure how to properly do that without the resulting books just being wrong.

Answer 1

I use other tools to keep track of my active trades; but still, I like to have Gnucash keep some sort of record. Here's how I've been trying to keep track of things:

Note: all accounts referenced here use the same underlying commodity (eg. USD).

Buy to Open @ 1.00/contract

DESCRIPTION     | Account                  | Dr     | Cr     |
Buy-to-Open     | Broker:Executions        | 100    |        |
Cost Basis      | Trading:Currency:USD     | 100    |        |
Commission Fees | Expense:Broker Fees      |   1.50 |        |
Net Open        | Broker:Cash              |        | 101.50 |
Cost Basis      | Trading:CBOE:Options     |        | 100    | 

Sell to Close @ 1.25/contract (0.25 gain)

DESCRIPTION     | Account                  | Dr     | Cr     |
Cost Basis      | Trading:CBOE:Options     | 100    |        |
Realized Gain   | Broker:Executions        |  25    |        |
Commission Fees | Expense:Broker Fees      |   1.50 |        |
Net Close       | Broker:Cash              | 123.50 |        |
Sell-to-Close   | Broker:Executions        |        | 125    |
Cost Basis      | Trading:Currency:USD     |        | 100    |
Realized Gain   | Income:Option Premium    |        |  25    |

Sell to Open @ 1.00/contract

DESCRIPTION     | Account                  | Dr     | Cr     |
Cost Basis      | Trading:CBOE:Options     | 100    |        |
Commission Fees | Expense:Broker Fees      |   1.50 |        |
Net Open        | Broker:Cash              |  98.50 |        |
Sell-to-Open    | Broker:Executions        |        | 100    |
Cost Basis      | Trading:Currency:USD     |        | 100    |

Buy to Close @ 0.75/contract (0.25 gain)

DESCRIPTION     | Account                  | Dr     | Cr     |
Buy to Close    | Broker:Executions        |  75    |        |
Realized Gain   | Broker:Executions        |  25    |        |
Cost Basis      | Trading:Currency:USD     | 100    |        |
Commission Fees | Expense:Broker Fees      |   1.50 |        |
Realized Gain   | Income:Option Premium    |        |  25    |
Cost Basis      | Trading:CBOE:Options     |        | 100    |
Net Close       | Broker:Cash              |        |  76.50 |

I use the Description/Memo field to describe the trade (underlying, strikes, and expiration); and use other tools to keep track of things more closely.

Answer 2

I would recommend you abstract these transactions. Gnucash's paradigm was not meant for this kind of complicated trading, e.g. options. What I did in the past was to have a brokerage account for each brokerage firm (ETRADE, etc.). I would use the Income:Capital Gain account as the counter-party to the transactions I would enter.

For purchases of options (where I paid a premium) I would enter the transaction as a loss of Capital Gain. If the option expired out-of-money, then this would be a simple loss. If the option was profitable, then a second transaction would record any Capital gains.

When I wrote an option (and collected a premium) I would not enter anything on the date of the initial transaction. But then enter a transaction upon either the sale of the option or upon expiration, as a Capital gain or loss.

For simple option trading the above may suffice.

Answer 3

If Mitt Romney was writing this reply, he'd reply, "Options are securities too, my friend." And for that reason, every trade made in them in the USA is listed on Form 8949 (Sales and Other Dispositions of Capital Assets). Well, at least my past and present brokers do so. In addition, realized losses can result in wash sales. For these reasons, tax trading programs account for every transaction.

While I don't know a thing about Gnucash, in general for your own purposes, you could create a single security for all covered call trades to reduce the number of security symbols but that would offer no more than the net return on the options. Any semblance of positional accounting would be lost and annual return numbers would all fall apart if any positions that were opened in the current year didn't expire until the following year.