How Options are treated in the Account Statement
by Rick Thachuk

After the outright purchase or sale of an option, beginners may be a little confused over how the option transaction is recorded in the account statement, particularly from day to day. For instance, if a customer buys an option for $700, then they may expect their total account value to decrease by $700 plus commission and fees. In fact, though, the total account value typically changes little, though it will decrease by the amount of any commission and fees paid. Let’s take a look at the recording of option transactions in greater detail.

Buying Options

Assume that a trader buys one April Gold call option having a strike price of $320 per ounce for 71 ticks equal to $710. At the end of the end of the day, that same option settles at 69 ticks or $690. The account statement for that day will show the purchase of an April Gold 320 Call for $710 plus any commission and other charges associated with the transaction, all of which will be deducted from the cash in the trader’s account. So, available cash that may, for instance, be used to meet margin requirements declines.

The trader is now long a call option and this is an asset. The value of this asset is determined by the day’s settlement price and this value is shown every day in the open position section of the account statement so long as the option remains on the books. The gold call option mentioned above settled at 69 ticks that day, so the option would be recorded in the open position section as having value of $690. Every day, this value may change. If the price of the underlying futures rises, then the option value will also rise and this higher option value will be recorded in the account statement. In this case, the trader is making profits on the option purchase. If, on the other hand, the price of the underlying futures declines, then the option value will fall and this lower option value will be recorded. In the extreme, the option value can only decline to zero in which case the trader has lost all of the money paid for the option. The value of this call option, along with any other options, are added back to the trader’s account statement under a separate section called Long Option Value. This value is included in the final account value or liquidity value. That is why the total account value will not be much changed the day of an option purchase.

Selling Options

Assume that the trader above instead sells one April Gold call option having a strike price of $320 per ounce for 71 ticks equal to $710. The sale generates cash for the trader. The account statement for that day will show cash increase by $710 less any commission and other charges associated with the transaction.

The trader is now short a call option and this is a liability. The value of this liability is determined by the day’s settlement price and this value is shown every day in the open position section of the account statement. The gold call option mentioned above settled at 69 ticks that day, so the option would be recorded as having a negative value or liability of $690. Every day, this value may change. If the price of the underlying futures rises, then the option value will also rise and this higher option liability will be recorded in the account statement. In this case, the trader loses money on the option transaction and there is no limit to what can be lost. If, on the other hand, the price of the underlying futures declines, then the option value will fall and this lower option liability will be recorded. If the option value declines to zero, then the liability disappears and the cash received from the option sale is profit. The value of this short call option, along with any other short options, are shown in the trader’s account statement under a separate section called Short Option Value. This value is subtracted from the final account value or liquidity value. That is why the final account value will not be much changed the day of an option sale.