Marking stock options with beancount

[Tuomas Salmi]

Recently my employer let me to mark some stock options I had and I'm having trouble to add them properly to the Beancount ledger.

Lets say I had 10 options letting me to buy 10 stocks of COMPANY. Looks like the transaction will be made first to my incentive bank account and then I'll transfer the bought stocks to my actual bank which holds my stocks.

I tried the following:

2021-03-31 * "Mark options"
  Assets:OP:BankAccount -61.90 EUR
  Assets:IncentiveBankAccount:Company   10 COMPANY {6.19 EUR}

2021-04-01 * "Transfer stocks to other bank account"
  Assets:IncentiveBankAccount:Company                               -10 COMPANY
  Assets:OtherBank:Company                             10 COMPANY

The beancheck accepts this syntax. However when I check the account balances in the Fava, I see that the end balance for "IncentiveBankAccount" is:
61.90 EUR
-10 COMPANY

So it seems like the Beancount will use two separate units for the "IncentiveBankAccount".

So how should I mark the following transactions to get all this sorted out:
1. Pay 61.90 EUR from my cash bank account to buy 10 COMPANY stocks to IncentiveBankAccount account (balance -> 10 COMPANY)
2. Move 10 COMPANY from IncentiveBankAccount to OtherBank:Company (balance 10 -> 0 COMPANY in incentive)

[Martin Blais]

 Hi Tuomas,

I don't understand your terminology.

"Marking" is the process of valuing active positions for the purpose of calculation unrealized P/L.

I think you mean "exercise."

On Sun, Apr 4, 2021 at 6:49 AM Tuomas Salmi <salmi....@gmail.com> wrote:

Recently my employer let me to mark some stock options I had and I'm having trouble to add them properly to the Beancount ledger.

Lets say I had 10 options letting me to buy 10 stocks of COMPANY. Looks like the transaction will be made first to my incentive bank account and then I'll transfer the bought stocks to my actual bank which holds my stocks.

I tried the following:

2021-03-31 * "Mark options"
  Assets:OP:BankAccount -61.90 EUR
  Assets:IncentiveBankAccount:Company   10 COMPANY {6.19 EUR}

2021-04-01 * "Transfer stocks to other bank account"
  Assets:IncentiveBankAccount:Company                               -10 COMPANY
  Assets:OtherBank:Company                             10 COMPANY

The beancheck accepts this syntax. However when I check the account balances in the Fava, I see that the end balance for "IncentiveBankAccount" is:
61.90 EUR
-10 COMPANY

So it seems like the Beancount will use two separate units for the "IncentiveBankAccount".

You need to use the cost basis on your transfer.

Your transactions seems incomplete to me.

You will want to represent the options themselves using a unique instrument name with the strike, side (put/call) and expiration data embedded in the symbol.

You will want to carefully adjust the sales price vs. cost basis and recognize the P/L to the right account if this is a company incentive (I believe the initial P/L may be treated as income tax, not gains).

There is much to say.

 

So how should I mark the following transactions to get all this sorted out:
1. Pay 61.90 EUR from my cash bank account to buy 10 COMPANY stocks to IncentiveBankAccount account (balance -> 10 COMPANY)
2. Move 10 COMPANY from IncentiveBankAccount to OtherBank:Company (balance 10 -> 0 COMPANY in incentive)

--
You received this message because you are subscribed to the Google Groups "Beancount" group.
To unsubscribe from this group and stop receiving emails from it, send an email to beancount+...@googlegroups.com.
To view this discussion on the web visit https://groups.google.com/d/msgid/beancount/b0b0602c-807b-479c-8d5e-1cf147cada7en%40googlegroups.com.

[Tuomas Salmi]

Thanks for reply. Looks like my terminology is a bit off since I this is first time I have had to think about this in English.
What I meant was that my employer gave me 10 options which let me to purchase stocks with the fixed price which was set when options were given to me. In this case I can buy COMPANY for 6.19 euros regardless of the real rate of the COMPANY in stock market. So I think you are right about "exercise" being the correct term.

> Your transactions seems incomplete to me.

> You will want to represent the options themselves using a unique instrument name with the strike, side (put/call) and expiration data embedded in the symbol.

> You will want to carefully adjust the sales price vs. cost basis and recognize the P/L to the right account if this is a company incentive (I believe the initial P/L may be treated as income tax, not gains).

Do you have any example of representing options like this? I think in Finland the initial P/L is treated as income tax. However, for my personal ledger in general I'm not too concerned about taxing details since almost all personal taxing process is done by taxing organization in Finland. So I don't usually track those details in my personal ledger and I'm happy with having the correct balances on each of my accounts. However, I suppose I might have to be a bit more careful in this case.

To be honest I think for my purposes it would be enough to just add 10 COMPANY stocks to my Assets:OtherBank:Company  with correct sales price and deduce the 61.90e from my cash bank account.

[Martin Blais]

Search on the mailing-list I'm pretty sure this came up before.

I'd have recognized call options using a unique symbol at zero cost and 6.19 is the strike.

Then on exercise reducing them while simultaneously opening a position in the company at the current value, reducing the cash account by the strike times the number of units and adding a posting for the profit to be recognized as income.

To view this discussion on the web visit https://groups.google.com/d/msgid/beancount/bde20d72-3ab4-4cc8-b77c-31a46856f207n%40googlegroups.com.

[Tuomas Salmi]

Hi Martin, I finally had time to get back to this and I found this discussion you probably referred to: https://groups.google.com/g/ledger-cli/c/zQHC7S80t90/m/3Ft8Tyr562sJ

This seems to almost make sense to me but I couldn't get this to work as I expected. Not sure if the problem is in my ledger or my understanding of exercising options. Either way I hope you could help a bit:

For my case I have the following situation:

Options: 10

Strike price: 6.19

Cost basis 6.19/10 = 0.619

Market value at the time of exercise: 9.56 EUR

And I tried the following:

2018-01-01 open Income:Vincit:OptionsVesting

2018-01-01 open Income:Nordnet:Vincit:Gains EUR

2018-01-01 open Expenses:OptionsExercise EUR

2021-03-31 * "Acquire options"

Assets:Nordnet:VincitOptions 10 VINCIT_OPTIONS {0.619 EUR}

Income:Vincit:OptionsVesting

2021-05-10 * "Exercise options"

Assets:Nordnet:VincitOptions -10 VINCIT_OPTIONS {0.619 EUR} @ 9.56 EUR

Assets:Nordnet:Vincit 10 VINCIT { 9.56 EUR }

Income:Nordnet:Vincit:Gains -27.51 EUR

Expenses:OptionsExercise -61.90 EUR

Beancount accepts this but when I checkout my Fava balance sheet I see following:
Assets:Nordnet:Vincit 104 VINCIT (should be 104 + 10 = 114 VINCIT) and in EUR column there is "95.60"
Assets:Nordnet:VincitOptions 0 (this seems ok since I exercised them)

I suppose this might be some conceptual misunderstanding I have but when I get more VINCIT stocks by either exercising or buying them, shouldn't they just be added up to the VINCIT account as units in my ledger and not as EURs?

Another thing I don't really get is the Gains part of the exercise transaction. I mean of course I gain value by exercising the option by lower value than its current market price, but shouldn't that just show up as a gain in the value of my stock position and not as direct income since I'm not selling the stocks immediately on exercise? Like shouldn't the exercise leas to 10 new lots of VINCIT with value of 6.19 EUR?

[Tuomas Salmi]

Any comment/help for this?

[redst...@gmail.com]

Here is my post in the thread you linked to. It contains and example of the entire lifecycle of an ISO (grant -> vest -> exercise -> sale). Though I'm not familiar with the details of your options, the options you describe sound very similar to ISOs in the US.

The example above should solve all the problems that you brought up. Your transaction purchases VINCIT_OPTIONS at 0.619 EUR, and this may be the source of the confusion: when exercising, you are buying VINCIT, not VINCINT_OPTIONS, at a price of 0.619, even though the fair market value at that time is higher (9.56 EUR). The example I linked above models this in double entry book keeping. I'm wondering if you've had a chance to try it, and if so, what you ran into?

[Tuomas Salmi]

Thanks for link.  I think I now understand the idea here a bit better based on your example. By applying it to my case I manage to get Beancount to balance. However when I still look the balance in Fava GUI, it says that my Assets:Nordnet:Vincit account contains 61.90 EUR and 104 VINCIT lots which I think is wrong? Whereas shouldn't the EUR amount from my bank account be converted to VINCIT lots?

My current transactions are as follow:

2018-01-01 open Assets:Vincit:Options:Unvested
2018-01-01 open Assets:Vincit:Options:Vested
2018-01-01 open Assets:Vincit:Options
2018-01-01 open Income:Vincit:Options

2018-01-01 open Income:Nordnet:Vincit:Gains EUR

2018-01-01 open Expenses:Options:Exercise VINCIT_OPTIOT

2018-05-25 * "Vincit options grant"
  Assets:Vincit:Options:Unvested   10 VINCIT_OPTIOT
  Income:Vincit:Options

2021-03-31 * "Vincit options vesting"
  Assets:Vincit:Options:Unvested   -10 VINCIT_OPTIOT
  Assets:Vincit:Options:Vested     10 VINCIT_OPTIOT

2021-05-10 * "Vincit options exercise "
  Assets:Vincit:Options:Vested         -10 VINCIT_OPTIOT
  Expenses:Options:Exercise     10 VINCIT_OPTIOT  ; We "spend" our option to be able to purchase the stock at the strike price. So it's an expense.
  Assets:Nordnet:Vincit  10 VINCIT {6.19 EUR}
  Assets:BankAccount -61.90 EUR ; bank account cash used to exercise the options

[redst...@gmail.com]

Change the "At Cost" setting in fava to "Units" and you'll see it.

[Tuomas Salmi]

Ahha! So that was it. Thank you, now it makes sense!