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

Published on Thursday, June 7, 2018 by Chittorgarh.com Team | Modified on Wednesday, February 28, 2024

In India, a growing number of traders are choosing options as investment instruments. According to government estimates, the Muslim population in India is expected to be 19.7 crore in 2023, which is about 15% of India's population. Whether options trading is halal or haram is increasingly being asked. Many Muslims are asking this question on Quora and other forums.

'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?

It is generally accepted that share trading is halal, provided that:

• The shares come from a company that does not trade in a commodity/service that is haram.
• The shares belong to a company that does not offer products/services that are harmful to a Muslim country.
• Buying, holding, and selling legitimate shares is permissible in Islam.

However, opinions differ as to whether options trading is halal or haram.

The Arguments in favour of Options Trading as Halal-

A call option is a contract that gives the buyer the right, but not the obligation, to buy a certain underlying asset at a certain price and on a certain date. It therefore only gives you the right, but not the obligation. This is similar to paying a deposit to buy a car or house without any obligation to buy. The buyer can refuse to buy the underlying asset and forfeit the deposit. And some scholars consider such contracts permissible.

Source: Islamqa

The argument against Options Trading as halal-

According to Shariah law (also called Shariah or Shia law), option trading is not allowed due to the involvement of Gharar and Maysir-

• Gharar: Gharar means risk. Options trading contains the element of Gharar because the nature of the trade involves excessive uncertainty. When someone buys or sells an option, the probability of getting the strike price is highly uncertain.
• Maysir: Maysir means gambling. A risky transaction with an element of speculation or uncertainty is Maysir.

When trading options on the stock exchange, fees are charged for promises that are not permitted under Sharia law. Charging the premium fee is unavoidable and violates Sharia regulations.

As we have already mentioned, there is no definitive answer to the question of whether options trading is halal or haram. While many people consider options trading to be halal and therefore participate in the options market, there are a significant number of people who believe that it is not in line with Islamic principles.

Many believe that this depends on the type of trade and the underlying asset of the option. Therefore, it is best to seek advice from a religious scholar who can understand and guide your trades.