Investing Into Stock options

What do you think about investing stock options? Just to be clear, i’m not asking about “stocks”, I’m asking about “stock options”

Wasalam

May Allah bless you.
Due to their speculative and gambling nature, option contracts are considered as prohibited by most scholars.
Some Islamic financial institutions tend to use alternatives contracts instead, such as 'arbun and wa’ad.

And Allah knows best!

what do the scholars who allowed it say?

Some scholars allow a version of an option contract used in Islamic financial firms. This contract is known as 'arbun or 'urbun. The scholars who allow this is Imam Ahmad bin Hanbal, fiqh institutions such as IFA Jeddah, Al Lajna Al Daima and AAOIFI.

In terms of the conventional option contracts, those who may allow it, do not see options as a form or gambling, rather they feel that speculation on the market can enhance liquidity and help in hedging.

They also disagree with the fact that, options have been made haram because one pays for something intangible (i.e. the right to buy) which cannot be considered as a subject of sale. They argue that, there is nothing wrong from a shariah perspective in charging a fee for such right.

For more details please see Dr Hashim Kamali’s book, Islamic Commercial Law: An Analysis of Futures and Options

Kind regards

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Assalaamu alaykum,

You may read the following research paper I’ve written on Options:

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Jazzaka Allah khairan for your response. Can you please tell me about 'arbun or 'urbun? I tried to research about these two terms online but I didn’t find information. Are they a type of options trading? And if so what platforms support it?

Assalmu alikum sheikh, I’d really appreciate an answer.

Arbun is a down payment that is made at the time of the execution of a contract. It is considered a part of the price of the asset in the contract when that the client makes all his payments on time. If he fails to do so, the contract stands annulled and he loses the deposit.

are there any stock options platforms that support this?

Asalamualikom, @Mufti_Faraz_Adam your pdf is no longer available. I had a question regarding selling covered calls specifically. I am obligated to sell to the buyer the shares that I hold if it reaches that strike price. They pay a premium to reserve my shares (otherwise I could sell them to someone else). Why is this transaction specifically Haram from the perspective of someone who is selling covered calls? It is akin to putting a deposit down on a house to reserve a price…

I understand why naked calls and puts are Haram, that is very clear to me. But my question is regarding selling covered calls specifically

JAK

Please share this again. I would like to read em

Assalamualaikum Mufti_Faraz_Adam
'Afwan… the pdf shared here is not available on the website…

Wassalam,
Zuraidah

I absolutely disagree that ALL options are involved in gambling or speculation- no more so than any other stock trade. This is simply not the case and I can elaborate at lengths about this is need be.

The zero-sum game argument does not hold water either as there are innumerable win-win options as well as lose lose options.

There are a variety of intentions within this field - some of which would be clearly haram and some of which should be at least considered to be possibly halal.

Consider the covered call - even a buy-write covered call. The ultimate Intention is to make income by selling my stock. I am willing to hold this stock for a longer amount of time - so the buyer does not have to purchase now (perhaps they do not have enough money, do not want the risk, or want to shop around)- holding the stock in this way for the buyer makes me more profit. I am still making money off of my asset, not something imaginary.

Where this becomes problematic is extreme risk as well as a scenario where one is intentionally looking to sell a write to expire and take money for nothing. This is perhaps questionable.

The real important argument is not around gambling or speculations as these can clearly go either way, making a broad condemnation of options on these points inadmissible as justifiable.

The important argument is around whether one is selling a “right” and if that is halal or haram. But you are not simply selling and buying a right. You are selling and providing a service which is to hold an asset for another person to give them time to make a decision on their purchase. This actually could be a noble use of funds for someone who has assets to provide such a service IF if is done in a way that reasonably can create winners on both sides. I would argue that ITM calls, ATM and slightly OTM (or OTM in a reasonable distance to expect it is reasonable to hit the strike price are all halal. In fact, you could deem that once the right is sold, the asset is in fact sold- it is simply waiting to be paid for, and they have until the given date to pay for it. It is energetically the same as the down payment - i Guarantee in those systems, which are deemed Islamic, the down payment is and total price is going to also be impacted by time and by volatility. These are simply semantics to make people feel they are doing something different but we need to be intellectually honest. Then intentions are the same and effectively the outcomes are close to the same as well as risk- it is just the words that are changed. Working simply with words in this way actually undermines sharia and moral values in society and Islamic practice rather than strengthens it. is gold and stock trading now halal if it takes advantage of buyers and asymmetrical knowledge or power simply because it is a an asset that changes hands? Is it more halal even if price speculation is involved, as it most certainly often is. We should be working to enjoin the good and forbid the evil which pertain to outcomes not simply language. Options can be more halal than trading stocks and gold or they can be haram.

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Assalam alai Kum,

I Checked on Google that Saudi Stock Exchange (Tadawul) has started future and option trading on single stock. As far as I checked tadawul is sharia compliant.

Please confirm whether option trading on single stock is halal or haram

Regards,
Samar Maqsood