Entering and tracking the value of stock options in RA Personal

Legacy KB ID: 3237

Question

How can I enter and track the value of stock options in RA Personal?

Answer

A stock option is a guaranteed right to buy a specified number of shares of stock at a specified price. In itself, the option has no direct cash value.

For example, an employer awards an employee the option to buy 100 shares of company stock at $10 per share. The potential value is related to the market price of the stock. An option to buy stock at $10 per share has substantial value if the current market price of the stock is $25 per share. Exercising the option would mean buying the 100 shares at the $10 option price; they can immediately be sold at market price of $25 per share. So, this stock option has a potential value today of $1500.

To track the value of stock options in RA Personal, use this procedure:

1. Create a new investment account.
   
   • Use it only for options in one stock.
   • Do not link it to a checking account.
   • Do not select the "One mutual fund" option. Choose "Stocks, bonds or several mutual funds."
   • Name the account the same as the stock to be tracked. For example, "Electric Element."
2. Point to Investment on the List menu and choose Security Type. This opens the Security Type List.
3. In the Security Type List, click the New button, and create the new security type "Exercise Price."
4. Point to Investment on the List menu and choose Security. This opens the Security List showing all the securities currently tracked in this RA Personal file.
5. Click the New button in the Security List window.
6. Create the new security, Electric Element, and for type, use Exercise Price.
7. Create a new security, Electric Element Opt-7/96. Do not enter a security symbol for this one if you do security price downloads.
8. In the account register, enter a transaction to Buy the stock options on the day they were awarded. For example, create a Buy transaction for 100 shares of Electric Element at $10 per share on 7/1/96. The account will now show a negative (red) cash balance of $1000.
9. In the account register, enter a Sell transaction for 100 shares of Electric Element Opt-7/96 at $10 per share. The cash balance in the account will now be zero.
10. Go to Portfolio and update current market price for Electric Element ($25 per share, for instance). The Market Value for Electric Element will now be $2500, and the Market Value for Electric Element Opt-7/96 will be $1000. The difference between these two ($1500) is in the Gain/Loss column. Each time the price of Electric Element is updated, the current potential value of this stock option is shown. Do not update the price of Electric Element Opt-7/96.

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