An option is a derivative contract which gives the holder (buyer) the right, without the obligation, to exercise on an underlying asset whether by buying or selling it for a specified price (the strike price) by or at a preset future date. The underlying asset may be a share of stock, a commodity, a currency, an interest rate, an index value, etc. The writer of an option sells the right to exercise in return for a price known as the premium. The writer is under obligation to sell or buy as demanded by the holder.

Shari’a doesn’t permit options whether with respect to trading or writing. This is because the subject-matter of the contract is not a real asset (physical or financial) that can be considered a countervalue or compensation. In other words, the countervalue that an option’s holder would receive is probabilistic, depending on the level of the underlying price/ rate/ index relative to the strike price.