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Mohammad Hashim Kamali



This essay is presented in two sections. Section one is devoted to a
market analysis of options, and section two to a Shari'ah perspective on
options trading. There is no real shortage of information in the operational
procedures of options and the various ways in which options are
utilized as trading vehicles and hedging and risk-reduction devices. On
the other hand, there is a shortage of in-depth information analyzing
options trading from the perspective of the Shari'ah. The second part of
this essay is tentative, in part because certain aspects of the issue need
further development and research. The literature on the subject is in its
early stages and has not reached a stage where consensus on issues can
be identified. This is borne out perhaps by the divided opinion that we
have at present over the basic question of the validity or nonvalidity of
options from an Islamic legal perspective. I shall review these two
opposing currents of opinion in due course. Suffice it here to note that
this presentation does not seek to advocate the validity of those varieties
of options which either directly or indirectly proceed on the charging of
fixed interest to accounts. This may be said to be one of the distinctive
features of the Shari'ah perspective on options-just as it is of all varieties
of commercial transactions in Islamic law.
My review of the mechanics of options trading in the first section of
this essay broadly indicates that options trading does not proceed on
charging of fixed interest, nor does it involve unwarranted risk taking
and uncertainty (gharur). Options trading has a logic of its own, which
is dominated by the idea of risk reduction and hedging against excessively
large positions in its underlying assets. From the perspective of
Islamic law this aspect of options is attractive and hence, from this perspective
I make the case for the legality of options. I may also add here
in passing that options trading cannot be equated with gambling or overindulgence
in financial speculation. as it is basically designed to ...

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