Exercising Regular Stock Options

Mar 21, 2006 3 Replies
S

I purchase regular March 10 calls awhile ago for $0.80. The options were in the money an I exercised them. After downloading the transaction from my broker (Fidelity) the transactions were: Remove x options Buy x shares at $10



The end result was that Quicken shows the stock position with a $10.00 basis whereas the basis should be $10.80 (plus transaction costs).



Quicken has an "exercise employee stock option" but it does not have an "exercise regular stock option".



What is the best way of correcting the transactions? Would the following replacement transactions work: Sell x options at cost Buy x shares at $10.80 ( plus transaction costs)



Any suggestions welcome.


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S

The simplest way to handle conventional options, puts and calls, is to treat them as specific securities and not bother trying to link them to the underlying security.

If you decided to exercise the option to take position of the stock at $10.00, you would do the following:

Buy 100 shares of XYZ at $10.00 Sell March XYZ CALL 10's at $0.00.

The first transaction, puts the stock into your account; the second transaction removes the call from your account. Since you exercised the call, you no longer own it.

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S

Since Quicken does not provide a standard option exercise the proper way to book the transaction is: Sell March XYZ CALL 10's at 0.80 + transaction costs (This sets the P&L on the trade to zero) Buy 100 shares of XYZ at 10.80 + transaction costs of the options and the exercise. This provides the proper basis for the stock.

Stu

"Steve Dell" wrote:

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D

So now you're aswering your own OLD messages?

How strange!

db

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