KembaraXtra – Islamic Derivatives: Do You Need to Own the Asset Before Using a Put Option?

KembaraXtra – Islamic Derivatives: Do You Need to Own the Asset Before Using a Put Option?

🔹 Short Answer

👉 Not necessarily. It depends on the situation.

There are two different ways a put option is used:

🔹 1. Hedging (You Already Own the Asset) ✅

✔ This matches what you said

🔸 How It Works

You already own the commodity (e.g., palm oil or stock)
You buy a put option (pay premium)
You use it as protection against price drop

🔸 Example

You own palm oil worth RM4,000
You buy a put option (strike RM4,000, premium RM50)

👉 If price drops to RM3,500:

You can still sell at RM4,000

✔ You are protected
✔ Like insurance

👉 Profit = RM500 − RM50 = RM450

🔹 2. Speculation (You Do NOT Own the Asset) ❗

👉 This is very common in real markets

🔸 How It Works

You do NOT own the asset
You just buy the put option (premium)
You profit from price falling

🔸 Example

Strike = RM4,000
Price drops to RM3,500

👉 You receive RM500 (cash settlement)

✔ No need to own the asset

🔹 Important Difference

Hedging → you already own asset
Speculation → you don’t own asset

🔹 Shariah Insight (Very Important)

👉 The second case (no ownership) is problematic:

❌ Selling without ownership
❌ Pure speculation
❌ No real asset exchange

👉 This is one reason options are not allowed in Islamic finance

🔹 Simple Summary

You can own the asset first → for protection ✅
You don’t have to own it → for speculation ❗
Both exist in real markets

🔹 Final Clarification

👉 Your statement is:
✔ Correct for hedging
❗ Not always required in general options trading

FINANCE

KembaraXtra – Islamic Derivatives: Do You Need to Own the Asset Before Using a Put Option?

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