Stock options

Question ID: 28555

Are you familar with stock options?
Stock options is basically a contract on a specific stock in the stock market where the owner of the stocks agrees to sell stocks he or she owns for a strike price over a period of time for a premium that buyer pays upfront.
This is usually used to hedge against the risk or up and down market.

For example:
I buy 100 stocks of Best Buy (BBY) for a price of $40 a share.
I issue a stock option on the 100 shares of BBY.
The option basically is a contract that would force me (the owner) to sell the stocks at an agreed upon price (for example: $42) over 2 months period.
The buyer would pay me a premium for this contract; let’s say $2 per share now (total would be $200 which is not refundable)
At this point, I cannot sell the 100 shares until the end of the 2 months.
During the 2 month, if the price goes to $50, the buyer would buy the stock from me for the originally agreed upon price the $42
. If the price goes down to $35, then there is no point for the buyer to buy it from me at $42 because he can buy it from the market at $35 anyway.
Now, I would like to point out that some people could say that this is a gamble;
Well, I kind of disagree on this because people do a lot of studies on the stocks to forecast a direction (up or down).
They study the historical data, earnings,…etc before they decide to buy the option for that specific stock.

I am not trying to make a case on whether options are halal or haram here but I just wanted to put the facts before you.

I haven’t traded options before; So, I would like to hear from you on whether options are halal or haram before I do it.

Thanks and gazak Allah khairaan.

Marked as spam
Asked on August 14, 2008 12:00 am
Private answer

This form of dealing is not permissible due to various reasons

1) Forced to sell

2) Not refundable

3) Cannot see till end of 2 Months

Marked as spam
Answered on August 14, 2008 12:00 am