Mu' meneen Brothers and Sisters,

As Salaam Aleikum wa Rahmatullahi wa Barakatuh.  (May Allah's Peace, Mercy and Blessings be upon all of you)

One of our brothers/sisters has asked this question:

Brother, salaam u alaikum,

My question is on options trading. In options, you are actually purchasing the right to buy a stock at a future date for a fixed price (regardless of the current price in the market). If you exercise the option, you buy at the price set in the past, otherwise, you do nothing and the option expire (and you lose what you paid for the option).

Is this type of trading allowed in Islam?

Salaam u alaikum.

(There may be some grammatical and spelling errors in the above statement. The forum does not change anything from questions, comments and statements received from our readers for circulation in confidentiality.)

Answer:

Options stock trading

In the name of Allah, We praise Him, seek His help and ask for His forgiveness. Whoever Allah guides none can misguide, and whoever He allows to fall astray, none can guide them aright. We bear witness that there is none worthy of worship but Allah Alone, and we bear witness that Muhammad (saws) is His slave-servant and the seal of His Messengers.

According to the view of most scholars in Islam, investment in shares and/or the stock market in its essence is permissible in Islam, provided the following guideless are honored:

The three main factors that make a stock haraam according to the scholars is as follows:

1.      The company should not deal in a product which is declared haraam in its essence in Islam. Eg. alchohol, prostitution, usury, pork, etc.

2.      The company should not deal in a product which is used to harm a muslim country. Eg. Arms manufacturing in a pagan country, etc.

3.     Only the pure buying, holding, and selling of lawful stocks is termed permissible by the scholars. All types of other derivative transactions like buying ‘options’, ‘shorting’ the stock, buying ‘calls’, selling ‘calls’, buying ‘puts’, selling ‘puts’, or ‘straddles’, or any other variations and derivatives are not lawful.

Whatever written of Truth and benefit is only due to Allah’s Assistance and Guidance, and whatever of error is of me alone. Allah Alone Knows Best and He is the Only Source of Strength.

Your brother and well wisher in Islam,

Burhan