SUMMARY
An employee "option" is a contract that allows you to trade a security
at some future date. Typically, employee options are given as bonuses
or incentives by employers. Under these type of contracts, the issuer
(employer) finances the buying or selling of the shares of stocks. When
the option is exercised, the issuer (employer) receives the initial
contribution back and the difference between the buy and sell prices is
given to the employee.
For example, if your company issued you a stock option agreement for
100 shares of stock at a strike price of $50.00, the total value of
this option is $5,000.00. This is the amount of money needed to buy
these shares of stocks. If the market price of this stock is $60.00 at
the time you exercise your option, the total income received from this
sale will be $6,000.00. Your company would receive its initial
$5,000.00, and you would keep the difference (that is, $1,000.00).
Because you do not fund the purchase of the stock, you must be careful
how you track this information in Money. (To track this type of
investment, refer to the "Steps to Set Up Option Investments" section
below.)
Also, some option agreements may "vest" over a period of time. In other
words, a percentage of the total amount of shares may be exercised
after a certain length of time. Each year, the percentage increases
until the entire amount of shares can be exercised. (To track vested
options, refer to the "Steps to Set Up a Vested Option" section of this
article.)
STEPS TO SET UP OPTION INVESTMENTS
To enter employee option investments transactions in Money, follow these
steps:
- Create an Investment Account with an Associated Cash Account. You
may want to name the account "Options."
- Enter a Buy activity for the option, and enter the total amount of
shares specified in the option agreement and the purchase price.
- When you exercise the option, enter a sell activity for the total
number of shares sold. Enter the current market price at which the
shares were sold.
Your net gain or loss is reflected in the Associated Cash Account.
For example, let's say you are holding an option agreement from 1/1/95
for 100 shares of Wide World Importers stock, with a guaranteed
purchase price of $50.00. On 9/1/96, you exercise your option at a
current market price of $60.00. To track this investment activity in
Money, you would enter the following two transactions in your
Investment Account:
DATE INVESTMENT ACTIVITY QTY PRICE TOTAL/Transfer
---- ---------- -------- --- ----- --------------
9/1/93 Wide World Buy 100 $50.00 $5,000
Transfer: Cash:Options
9/1/94 Wide World Sell 100 $60.00 $6,000
Transfer: Cash:Options
Net Earnings = $1,000.00
NOTE: The negative value in the Associated Cash Account will be offset
by the total proceeds from the sale of the option. The difference will
be your gain or loss.
Limitations of Tracking This Type of Investment
The negative value in the associated cash account will negatively
affect your Net Worth Report and Income And Expense Report. You can
customize these reports to exclude this account. Once the option is
exercised, these reports should be accurate.
STEPS TO TRACK VESTED OPTIONS
- Create an Investment Account with an Associated Cash Account. You
may want to name the account "Options."
- Enter a Buy transaction to represent the option agreement.
When you enter the buy activity for a stock option, type only the
number of vested shares in the Quantity field. In the Memo field,
type the number of unvested shares for reference. Transfer the funds
from the associated cash account described in step 1.
- When additional shares vest, increase the number of shares in the
Quantity field of the original Buy transaction, and subtract the
corresponding number from the Memo field.
- Enter the sell activity when you exercise the option. Note, the
total amount you sell has to be less than or equal to the total
shares vested. For example, if you only have 50 shares of the
options vested, you can only sell up to 50 shares. Transfer the
funds to the associated cash account as described above.
For more information regarding Investments Accounts and Asset Accounts,
see your "Microsoft Money User's Guide" or the online Help file.