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KembaraXtra – Islamic Derivatives: Does Margin Deposit Apply to Option Contracts?
🔹 Short Answer
👉 Not in the same way as futures contracts.
🔹 How It Works in Options
🔸 1. Option Buyer
👉 Example:
🔸 2. Option Seller (Writer)
👉 Why?
🔹 Why Margin Is Needed for Seller Only
👉 So:
🔹 Simple Summary
🔹 Short Answer
👉 Not in the same way as futures contracts.
- In futures → both buyer and seller must deposit margin
- In options → mainly only the seller (writer) needs margin
🔹 How It Works in Options
🔸 1. Option Buyer
- Pays premium only
- ❌ Does not need to deposit margin
- Maximum loss = premium paid
👉 Example:
- Premium = RM50
- Worst case → you lose RM50 only
🔸 2. Option Seller (Writer)
- Receives the premium
- ⚠️ Has potentially large losses
- ✅ Must deposit margin as security
👉 Why?
- Because the seller is obligated to fulfill the contract if buyer exercises
🔹 Why Margin Is Needed for Seller Only
- Buyer → has a choice (not obligation)
- Seller → has a legal obligation
👉 So:
- Seller carries more risk
- Margin protects the system
- Option buyer → buys a ticket (premium) 🎟️
- Option seller → must be ready to deliver → needs a deposit (margin)
🔹 Simple Summary
- Futures → both sides deposit margin
- Options → only seller deposits margin
- Premium ≠ margin
- Margin protects against seller’s risk
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