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​HIslamic Derivatives – Shari’ah View on Conventional Options (Notes Form)


A. General Position
  • Conventional options are generally not approved under Shari’ah
  • Majority of Muslim jurists:
    • Consider them impermissible


B. Ruling by Islamic Authority
  • Islamic Fiqh Academy (OIC):
    • Declared options not permissible
  • Reason:
    • Subject matter of options is:
      • Not money
      • Not a tangible asset
      • Not a valid transferable right under Shari’ah


C. Reasons for Prohibition (Majority View)
1. Involvement of Gambling
  • Options resemble:
    • Maisir
  • Outcome depends heavily on:
    • price movements and chance


2. Excessive Speculation
  • High level of:
    • Market guessing and uncertainty
  • Leads to:
    • Gharar


3. Issue of Premium
  • Premium paid for the option:
    • Seen as unjustified
    • No clear countervalue (asset/service)
  • Therefore:
    • Considered invalid in Shari’ah


D. Minority View (Alternative Opinion)
  • Some scholars believe:
    • Options can be permissible with modifications
  • Argument:
    • Options can serve:
      • Risk management (hedging)
      • Legitimate business needs


E. Development of Shari’ah-Compliant Alternatives
  • Islamic financial institutions (IFIs):
    • Attempt to design Shari’ah-compliant options
  • Based on minority opinion:
    • Adjust structure to:
      • Avoid riba, gharar, and maisir
      • Link to real assets and contracts


F. Final Takeaway
  • Majority view:
    • Conventional options = not permissible
  • Minority view:
    • Allows modified, Shari’ah-compliant versions
  • Result:
    • Ongoing effort to create Islamic alternatives to options










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