What Is the Ruling on Call/ Put Options If They Are Shari’a Compliant?
Hanafi Fiqh
Answered by Mawlana Ilyas Patel
Question
I’ve been confused about this for a while because most Ulama opines that exercising call/put options is haram. But what about buying option contracts when one’s analysis of a stock predicts that the price of that stock will rise, thereby increasing the premium (cost) of its call options? So, is it permissible to buy call option contracts and then sell them for a profit when the premium on the contracts rises due to the stock’s rise (when done on Shariah-compliant stocks)?
But, if that is also haram, would it become halal in a situation where one desperately needs money?
Answer
In the Name of Allah, the Most Merciful and Compassionate.
I pray you are in good faith and health.
The majority of contemporary scholars are of the view that conventional options are not Sharia-compliant. The arguments and reasoning of most scholars revolve around the presence of deceptive uncertainty (gharar), the element of gambling (maysir) as both parties are essentially betting against each other, and the option itself not being a valid tradeable item (mabi’) in Islamic law. It is essentially the trading of risk itself.
Abu Huraira (Allah be pleased with him) reported that “Allah’s Messenger (Allah bless him and give him peace) forbade a transaction determined by throwing stones, and the type which involves some uncertainty.” (Muslim) [Usmani, Fiqh al-Buyu’; Resolution and Recommendations of the Council of the Islamic Fiqh Academy: 1985-2000]
Selling Contracts in Sharia-Compliant Stocks
Further research is required to develop products that are genuinely Sharia-compliant and acceptable for risk management in Islamic finance.
Person in Need of Money
It will not be permissible if a person is in need of money, as the contract is not permissible.
Related:
Taking a Leap with Shariah in the World of Options
Options Contract: What It Is, How It Works, Types of Contracts
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I pray this helps with your question.
Wassalam,
[Mawlana] Ilyas Patel
Checked and Approved by Shaykh Faraz Rabbani
Mawlana Ilyas Patel is a traditionally-trained scholar who has studied in the UK, India, Pakistan, Syria, Jordan, and Turkey. He started his early education in the UK. He went on to complete the hifz of the Quran in India, then enrolled in an Islamic seminary in the UK, where he studied the secular and ‘Aalimiyya sciences. He then traveled to Karachi, Pakistan. He has been an Imam in Rep of Ireland for several years. He has taught hifz of the Quran, Tajwid, Fiqh, and many other Islamic sciences to children and adults onsite and online extensively in the UK and Ireland. He taught at a local Islamic seminary for 12 years in the UK, where he was a librarian and a teacher of Islamic sciences. He currently resides in the UK with his wife. His interest is a love of books and gardening.
