What is the Islamic ruling on options contracts on shares/stocks?

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The object of the option contract is merely the right to buy or sell for a certain price. So what is being sold is the option itself, and this contract is binding upon one of the two parties, namely the seller of the option, whilst it is not binding upon the other party, namely the buyer of the option. With regard to this type of contract, and the form in which it now appears in the financial markets, because of what it involves of ambiguity and gambling, resolutions and fatwas have been issued stating that it is prohibited to sell or deal in such contracts.

It says in a resolution of the Islamic Fiqh Council, no. 63 (1/7):

Options contracts – as they are known today in the global financial markets – are a new kind of contract that does not come under the heading of any kind of Shar‘i contracts.
Because the object of the contract is not a specific item or benefit, or a financial right that could be compensated with something else, this type of contract is not permissible according to Islam. As these contracts are not permissible in the first place, it is not permissible to deal with them. End quote.

This is supported by the resolution of the seventeenth Barakah Conference on Islamic Economics, in which it says the following:

Because options refer to the right to buy or sell a product on the basis of specific conditions in return for some compensation for that right, and the people involved in the contract have contradictory expectations regarding the fluctuation of prices, the conference, on the basis that what the two parties want and wish for is not something that can be subject to a contract, or be compensated for, reiterates the resolution of the Islamic Fiqh Council, no. 63 (1/7)… End quote.

This kind of transaction comes under the heading of impermissible transactions that it is not permissible to initiate or deal in.


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