Option Investor
Educational Article

Record Keeping of Your Option Transactions

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Every person who runs a business or pays bills knows how important keeping good records are to keeping ones sanity. As a trader, it is probably the most important part of your option trading experience, next to only making a profit. If you are experienced with stock trading and have filed a Schedule D with your tax return on prior occasions, option record keeping should be a breeze for you. But like all record keeping, you need to have a systemic way of keeping your profits and losses detailed and accurate, yet relatively simple to organize. For all of you who are familiar with the use of a spreadsheet, I will offer you a little guideline that you may use that will make trading and record keeping fairly easy.

What information should I record regarding my option transactions?

Well, there is no exact answer, but a good tracking system should provide at least the things that I will provide to you in this article. Let's start with a basic list of information that we all should have.

1. The Date of Purchase This date is important, just like with your stock purchases for it establishes the beginning of your holding period

2. Number of Option Contracts that you purchased - Just like a stock purchase one needs to know the number of option contracts purchased in each transaction.

3. Description of the Underlying Security Usually in the form of the stock symbol of the option you are purchasing.

4. The Month of the Option Expiration this helps to further identify the specific option that you are buying. Remember options are purchased and sold during various months during the year.

5. The Strike Price of the Option the strike price helps to more specifically identify the description of the investment vehicle you have purchased (e.g. April 40, September 35)


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6. The Type of Option That being a Put or a Call option

7. The Option Symbol This is the series of letters that specifically tells you exactly what option you are trading. It identifies, the Stock, the Month, the Strike Price and whether it is a Put or Call option (e.g. GM-HI (General Motors August 45 Call Option)

8. The Price of Premium that you purchased the option for - Remember an option that is priced at $1.00 is actually $100, Since options are sold in lots of 100 shares that $1.00 is actually multiplied by 100 to give you a total of $100. (E.g. $2.00 = $200, $2.50 = $250)

9. The Commission or Transaction Fees this is the amount it costs for you to executed the trade through your broker, usually these costs are just included in your net cost, but it is a good idea to separate them, so you can see how much transactions fees reduce your profit for the year.

10. The NET COST of the Trade This is simply the number of contracts times the price of the option or premium plus the commission or transaction fees paid. You simply multiple Number or contracts X Premium and add the commission. This equals your NET COST for the transaction.

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