Commercial Law

1971 ◽  
Vol 57 (8) ◽  
pp. 1527
Keyword(s):  
Commercial Law

ISLAMIC COMMERCIAL LAW

1997 ◽  
Vol 14 (3) ◽  
pp. 17-37
Author(s):  
Mohammad Hashim Kamali
Keyword(s):  
Risk Reduction ◽  
Basic Question ◽  
Depth Information ◽  
Commercial Law ◽  
Other Hand ◽  
Legal Perspective ◽  
Financial Speculation ◽  
The Subject ◽  
Options Trading

This essay is presented in two sections. Section one is devoted to amarket analysis of options, and section two to a Shari'ah perspective onoptions trading. There is no real shortage of information in the operationalprocedures of options and the various ways in which options areutilized as trading vehicles and hedging and risk-reduction devices. Onthe other hand, there is a shortage of in-depth information analyzingoptions trading from the perspective of the Shari'ah. The second part ofthis essay is tentative, in part because certain aspects of the issue needfurther development and research. The literature on the subject is in itsearly stages and has not reached a stage where consensus on issues canbe identified. This is borne out perhaps by the divided opinion that wehave at present over the basic question of the validity or nonvalidity ofoptions from an Islamic legal perspective. I shall review these twoopposing currents of opinion in due course. Suffice it here to note thatthis presentation does not seek to advocate the validity of those varietiesof options which either directly or indirectly proceed on the charging offixed interest to accounts. This may be said to be one of the distinctivefeatures of the Shari'ah perspective on options-just as it is of all varietiesof commercial transactions in Islamic law.My review of the mechanics of options trading in the first section ofthis essay broadly indicates that options trading does not proceed oncharging of fixed interest, nor does it involve unwarranted risk takingand uncertainty (gharur). Options trading has a logic of its own, whichis dominated by the idea of risk reduction and hedging against excessivelylarge positions in its underlying assets. From the perspective ofIslamic law this aspect of options is attractive and hence, from this perspectiveI make the case for the legality of options. I may also add herein passing that options trading cannot be equated with gambling or overindulgencein financial speculation. as it is basically designed to ...

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