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KembaraXtra – Islamic Derivatives: Is There a Guarantee for Buyer and Seller in Call & Put Options?
🔹 Short Answer
👉 Yes, but the guarantee is not equal for both sides
🔹 1. Guarantee for Option Buyer
👉 The buyer has a strong protection
✔ What is Guaranteed?
👉 So:
🔸 Example
👉 Worst case:
✔ This is your guaranteed limit of loss
🔹 2. Guarantee for Option Seller (Writer)
👉 The seller has a binding obligation
✔ What is Guaranteed?
👉 To ensure this:
🔸 Example (Call Option)
👉 Seller must:
❌ Loss can be very large
🔹 3. Role of Clearing House
👉 The clearing house ensures:
✔ Seller’s margin is used as guarantee
🔹 5. Important Insight
👉 The system guarantees:
But:
🔹 Simple Summary
🔹 Short Answer
👉 Yes, but the guarantee is not equal for both sides
- Buyer → limited risk (guaranteed maximum loss)
- Seller → guaranteed obligation (higher risk)
🔹 1. Guarantee for Option Buyer
👉 The buyer has a strong protection
✔ What is Guaranteed?
- Maximum loss = premium only
- No obligation to exercise
👉 So:
- If market moves against you → you can walk away
🔸 Example
- Premium = RM50
👉 Worst case:
- You lose only RM50 ❌
✔ This is your guaranteed limit of loss
🔹 2. Guarantee for Option Seller (Writer)
👉 The seller has a binding obligation
✔ What is Guaranteed?
- Must fulfill the contract if buyer exercises
- Must pay profit or deliver asset
👉 To ensure this:
- Seller must provide margin
🔸 Example (Call Option)
- Strike = RM4,000
- Price rises to RM5,000
👉 Seller must:
- Either deliver asset at RM4,000
- Or pay RM1,000
❌ Loss can be very large
🔹 3. Role of Clearing House
👉 The clearing house ensures:
- Buyer receives profit
- Seller cannot escape obligation
✔ Seller’s margin is used as guarantee
🔹 5. Important Insight
👉 The system guarantees:
- The contract will be honored
But:
- It does NOT guarantee profit
🔹 Simple Summary
- Buyer → protected (limited loss) ✅
- Seller → obligated (higher risk) ❗
- Clearing house → ensures payment
- Margin → guarantees seller can pay
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