Derivatives are securities that derive their value from some underlying security. For example, an option to sell a stock, called a put, is a derivative. It derives its value from the underlying security. Another derivative is an option to buy a stock, called a call.

You can use Money to keep records of derivatives, such as puts and calls, that you buy.
In general, derivative record keeping is quite straightforward. If you buy a derivative, say a put or a call, and later sell the derivative, you simply have a normal investment transaction. You treat the purchase and later the sale in the same way that you treat the purchase and sale of any stock. If you make money, you realize a gain. If you lose money, you realize a loss.
If you buy or sell a put or call and hold the option until it expires, things work almost the same way. However, in this special case, you do need to record a Final Sale trans- action, and the sales price is zero. Obviously, if you hold a put or call until it expires, you don't actually sell the derivative. But you need to record a sale transaction to reflect the fact that the option is no longer worth anything.
These are the basic techniques you need to know for put and call record keeping- and record keeping for similar derivatives-but there are two special circumstances in which more complicated record keeping is required.

Selling Puts and Calls

If you sell puts and calls-note that the earlier discussion involves investing in puts and calls-you need to record the option as a regular buy or sell transaction. In other words, if you sell a put and the person to whom you sell it exercises the put, you record this transaction as a regular sales transaction. Similarly, if you sell a call, you record the transaction as a regular buy transaction.

NOTE If you sell a put or call option and the option never gets exercised, you record the amount of money the buyer pays you as Other Income.

Exercising Puts and Calls

Typically, individual investors don't actually exercise puts and calls that they buy. Instead, they simply sell the option back to the broker. However, you might end up exercising a put or call, and in this case, you need to perform special record keeping.
To record the exercise of a put option, record the sale of the put option at a price equal to zero. This zero-value sale is how you record the expiration of the option. After you have recorded the expiration of the option, you record the sale of the stock in the same way that you record the sale of any stock. (Remember that a put is an option to sell
stock.)
To record the exercise of a call option, record the sale of the call option at a price equal to zero. This zero-value price lets you record the expiration of the option. After you have recorded the expiration, you record a regular buy transaction. (Remember that a call option is an option to buy a security.)

How do I handle precious metals and commodities?

You can treat investments in gold and other precious metals, gold coins, agricultural items, and other commodities in the same way that you treat shares of stock. Rather than entering a share price, you enter a price per ounce or a price per bushel. And rather than recording a specific number of shares, you enter a specific number of whatever unit of measure is used to describe the commodity. In the case of gold, for example, you might enter the number of ounces. In the case of an agricultural item, you might
enter the number of bushels.

You can treat options to buy or sell commodities in the same way that you treat options to buy or sell securities. The earlier discussion on handling call and put options discusses the techniques you use for this record keeping.