Options Trading: Halal or Haram To Buy & Sell Options?

Published on Thursday, June 7, 2018 by Chittorgarh.com Team | Modified on Saturday, December 12, 2020

There is a growing population of traders in India who are choosing Options as an investment instrument. With around 14.2% (Census 2011) of the country's population being Muslim, a question is increasingly being asked is whether trading in Options is halal or haram. Many Muslims across Quora and other forums are asking-

'Is it permissible in Islam to trade in Options?'

'Is it halal to buy or sell Options?'

And so on.

Is stocks trading halal or haram?

There is wide acceptance of stocks trading being Halal provided-

• The stocks are of a company that doesn't deal with a product/services which is haram.
• The stocks are of a company that doesn't deal with a product/services which are used to harm a Muslim country.
• Buying, holding and selling of lawful stocks is permissible in Islam.

However, there is a divide in opinion on whether options trading is halal or haram.

The Arguments in favor of Options Trading as halal-

A call option is a contract that gives the buyer the right but not the obligation to buy a specified underlying at a specified price and on a specified date. So it only gives you right but not the obligation. And is more like paying a down payment to buy a vehicle or house with no obligation to buy it. The buyer can refuse to buy the underlying and forfeit the down payment. And some scholars believe such contracts are permissible.

Source: Islamqa

The argument against Options Trading as halal-

Options contracts that are traded in markets are not Sharia contracts and hence haram because-

• There is no specific object or item or financial right which can be compensated with something else
• There are a winner and loser and hence not every party is benefiting from the trade.
• It is a type of insurance
• It is speculative and is connected to fluctuations in prices

As we said earlier, there's no definitive answer to options trading being halal or haram. While a lot of people consider trading in options to be halal and hence participate in the Options market, there's a significant population which considers it not in accordance with Islamic principles.

There are many who are of the view that it depends on the nature of the trade and the underlying of the Option. And therefore it is best to seek advice from a religious scholar who can understand your trades and guide you ahead.