Are Options Halal? AAOIFI on Futures and Short Selling for UAE Traders (2026)

Options are not halal under the standards UAE Shariah committees follow. AAOIFI Shari'ah Standard No. 20 states that options 'are not permitted neither with respect to their formation nor trading', and the same standard bars futures and swaps. Standard No. 21 applies the rulings to shares and adds two more prohibitions: buying shares with interest-bearing margin loans and selling shares you do not own, which is a short sale. The reasoning is spelled out in the standard's own appendix and leaves no room for the covered-call workaround. For a UAE trader on baraka or Sarwa, the question is which products on those platforms fall on the wrong side of the line, and this page answers it. Start with the halal stocks hub if you are new to screening.

What AAOIFI Standard 20 says about futures, options and swaps

Shari'ah Standard No. 20, titled Sale of Commodities in Organized Markets, devotes its fifth section to derivatives and names four kinds: futures, options, indexes and swaps. The ruling on futures, item 5/1/2, is that 'it is not permitted according to the Shari'ah to undertake futures contracts either through their formation or trading'. The ruling on options, item 5/2/2, uses the same two-part phrasing: not permitted to form, not permitted to trade. Swaps, item 5/3/2, 'are not permitted in the forms in which they are practised in commodity exchanges'. The standard's definition of an option is worth quoting because it is exactly what a brokerage sells: a contract 'by means of which a right is bestowed, but not an obligation, for the purchase or sale of an identified item (like shares, commodities, currencies, indexes or debts) at a determined price and for a determined period'.

The standard then does something useful for anyone who still wants deal certainty without a derivative. Item 5/2/3 lists three Shariah substitutes for options: a sale of ascertained assets with part of the price paid as arbun (earnest money) and a right to revoke within a set period, a sale with a stipulated option to revoke for one or both parties during a known period, and a binding unilateral promise to sell or to buy with no price attached to the promise. Each substitute carries the same restriction in the text: the right created 'is not eligible for trading'. That single line is the difference between a Shariah-compliant arbun and an exchange-traded option. One attaches to a real purchase and dies with it; the other is itself the product.

What Standard 21 adds for shares: margin, short sales and lending

Shari'ah Standard No. 21, Financial Paper (Shares and Bonds), restates the derivative rulings for equities and extends them to the plumbing of a brokerage account. Item 3/12 says it is not permissible to conclude futures contracts for shares and item 3/13 says the same for options contracts, each cross-referring to Standard 20. Item 3/14 bars swap contracts on shares and their returns. Item 3/11 rules that Salam, the advance-payment sale that is permitted for commodities under Standard No. 10, 'is not permissible in shares'. The equity screening ratios that UAE investors know from the AAOIFI stock screening explainer sit in the same standard, at item 3/4, which is why a screened stock list and a derivatives ban come from one document.

Two items govern short selling directly. Item 3/5: 'It is not permissible to purchase shares by raising interest-bearing loans through a broker or another (margin sales), just as it is not permitted to mortgage the shares for such a loan.' Item 3/6: 'It is not permissible to sell shares that the seller does not own (short sale), and the promise of a broker to lend these at the time of delivery is of no consequence.' Items 3/9 and 3/15 close the side doors, barring the lending of shares and the renting of shares 'for the purpose of selling the rented shares, and returning shares similar to them, as is done in the stock-markets'. Standard No. 12 on Sharikah carries the identical rules at items 4/1/2/6 and 4/1/2/7, so the prohibition appears in two standards and is not an oversight.

Why the standard rejects them: ownership, debt for debt and cash settlement

The appendix to Standard 21 gives the basis for each prohibition, and reading it explains why the usual workarounds fail. On futures, the standard says the contract stipulates delay in delivering an ascertained item, which is prohibited, and that where both price and asset are deferred 'this is the sale of a debt for a debt, which is prohibited by agreement'. It adds that the seller 'mostly does not own the shares for which the futures contract has been concluded', which brings in the Prophetic prohibition on selling what one does not possess, and that most futures 'are completed through a cash settlement between the parties, and this is brazen gambling if this is stipulated within the contract'.

On options the reasoning is different and more fundamental. The standard holds that the right of option 'is not included in rights that can be sold', because the right is created by the contract itself, relates to an abstract act of buying or selling rather than to wealth, and is therefore in the same class as rights that Shariah does not allow to be sold. It then adds that option dealing 'is based on Gharar' and 'is based upon gambling and games of chance, equally for the buyer and the seller of a right to an option', and that writing an option to sell is the sale of something one does not own. Three independent objections, any one of which would suffice.

Do covered calls and cash-secured puts escape the ruling?

No. The covered-call argument runs that because the writer already owns the shares, the objection about selling what one does not own disappears. That addresses only one of the three objections above. The standard's primary basis is that the option right is not a saleable right at all, and the gharar and gambling objections apply 'equally for the buyer and the seller'. Owning the underlying shares changes none of this: the premium received is still the price of an abstract right, and the contract is still one whose outcome depends on a price the parties cannot know. Item 5/2/2 of Standard 20 says options are not permitted 'with respect to their formation', and writing a call is forming one.

Cash-secured puts fail for the same reason and add a second problem: the writer is selling a right to someone else to deliver shares the writer does not yet own, which is closer to the pure case the standard describes. The AAOIFI-approved alternative for a buyer who wants the right to walk away is the arbun structure at item 5/2/3/1, and it only works on a real purchase of identified assets with a revocation window, not as a stand-alone contract sold for premium. A trader who wants income from a position has the halal routes of dividends and sale at a profit, both covered in the practical guide to buying halal stocks in the UAE.

Prediction markets, margin and day trading: the gharar and maysir tests

Prediction markets have no AAOIFI standard of their own, and this page does not claim one. The test is the same two concepts that run through Standards 20 and 21: gharar, meaning uncertainty about the subject matter of a contract, and maysir, meaning gain that depends on chance at the other party's loss. A contract that pays out on an election result, a sports score or a weather event, where nothing is bought or sold except the outcome, is settled in cash on an event neither party controls. That is the pattern the standard describes when it calls cash-settled futures gambling. Treat prediction markets as impermissible unless a recognised Shariah board rules otherwise on a specific product, and none in the UAE has.

Geared trading fails more simply. Standard 21 item 3/5 bars buying shares with interest-bearing loans from a broker, which is what a margin account is, and geared products built on futures or swaps inherit the derivative prohibition. Day trading in cash is a different matter. Item 3/7 of the standard permits a buyer to sell a share 'after the completion of the formalities of the sale and the transfer of liability to him even though the final settlement in his favour has not been made', so rapid cash trading of screened shares is not barred by the ownership rule. The questions scholars raise about day trading concern intention and conduct, not the contract, and are addressed in the UAE investing apps and Shariah boards piece.

Arbun, wa'd and Salam: the structures that are permitted and why

• Arbun (earnest money): a buyer pays part of the price on a real purchase of identified assets and may revoke within a stated period, forfeiting the deposit; permitted under SS 20 item 5/2/3/1 and SS 53, provided the revocation right is never traded.
• Khiyar al-shart (stipulated option): a sale of the asset itself with a revocation right for one or both parties during a known period; permitted under SS 20 item 5/2/3/2 and, again, 'not eligible for trading'.
• Wa'd (unilateral binding promise): one party promises to buy or sell without any counter-value for the promise; permitted under SS 20 item 5/2/3/3 and SS 49, and the basis for Murabaha ordering in UAE banks.
• Salam: full price paid now for described goods delivered later; permitted for commodities under SS 10 but, per SS 21 item 3/11, not in shares.
• What unites them: each attaches to a real asset or a real promise, none is settled purely in cash, and none creates a tradeable right.

Which UAE-accessible platforms offer derivatives, and how to avoid them

baraka is the clearest case. Its home page advertises 'US Stocks and ETFs, Local Stocks, Options and Physical Gold, with a Sharia Filter', so options trading is live on the same app that carries the halal screener. The footer disclosure on getbaraka.com is precise and should be read by every Muslim user: baraka holds a DFSA Islamic Window endorsement and a Shariah Supervisory Board, the screening data comes from a third-party provider, and 'Shariah screening applies to individual equities and ETFs only and does not extend to Bonds or Options'. In other words the app does not claim its options product is halal, and a user who relies on the Sharia Filter should treat the Options tab as outside the window. Our baraka review covers the rest of the platform.

Sarwa runs an ADGM-regulated Category 3C licence through Sarwa Digital Wealth (Capital) Limited. Its pricing page states that 'options trading entails significant risk' and, separately, that 'Sarwa does not hold an Islamic Window endorsement from the Financial Services Regulatory Authority', advising clients 'to conduct their own due diligence'. Sarwa Trade charges USD 1 or 0.25% per trade with a USD 500 minimum. A Muslim using Sarwa for its halal portfolios or for cash trading of screened shares should confine activity to those two products. International brokers reachable from the UAE typically default to margin accounts and offer options and futures; the fix is to open a cash account, decline the margin agreement and leave the derivatives permissions unapproved. The Securities and Commodities Authority regulates onshore brokers and publishes licensing and complaints services on sca.gov.ae; it does not rule on Shariah questions, which is why the AAOIFI text matters.

Our view: what to stop, what to keep

If you hold open option positions, close them at the next opportunity and do not open more; the premium already earned or paid is a sunk matter for your own conscience and a scholar, but new contracts are a fresh decision. If you have a margin account at any broker, convert it to cash and pay off any borrowed balance; the interest on it is riba regardless of what you bought with it. If you short, stop, because no broker's lending promise cures the ownership problem in the standard's own words. Keep cash trading of screened shares, including short-holding periods, and keep halal ETFs and the robo portfolios compared in the UAE halal robo-advisor comparison.

For a trader who wants deal certainty on a real purchase, the arbun and stipulated-option structures exist and are used in UAE property and Murabaha dealings; they are not available as retail exchange products, and that is the point. Crypto derivatives raise the same questions on top of the asset-level debate covered on the is crypto halal page. Facts checked against aaoifi.com, getbaraka.com, sarwa.co, sca.gov.ae on 9 September 2026.

Frequently asked questions

Are options halal according to AAOIFI?

No. AAOIFI Shari'ah Standard No. 20, item 5/2/2, states that options 'are not permitted neither with respect to their formation nor trading', and Standard No. 21, item 3/13, applies the same ruling to options on shares. The basis given is that the option right is not a saleable right, that option dealing involves gharar, and that it resembles gambling for both buyer and seller.

Are futures halal?

No. Standard No. 20, item 5/1/2, says futures are not permitted 'either through their formation or trading', and Standard No. 21, item 3/12, repeats this for shares. The standard's reasoning cites deferred delivery of an identified asset, the sale of a debt for a debt, selling what one does not own and cash settlement that amounts to gambling. Salam is the permitted alternative for commodities, not shares.

Is short selling haram?

Yes under AAOIFI. Standard No. 21, item 3/6, says it is not permissible to sell shares the seller does not own, and that 'the promise of a broker to lend these at the time of delivery is of no consequence'. Items 3/9 and 3/15 also bar lending and renting shares for the purpose of selling them, which closes the securities-lending route that short sales depend on.

Are covered calls halal?

No. Owning the underlying shares removes only one of the three objections AAOIFI raises. The standard's main basis is that the option right itself cannot be sold, and it says the gharar and gambling objections apply equally to the buyer and the seller of the option. Writing a call forms an option contract, which item 5/2/2 of Standard 20 prohibits.

Does baraka's Sharia Filter cover its options product?

No. baraka's own website disclosure states that Shariah screening 'applies to individual equities and ETFs only and does not extend to Bonds or Options'. The app offers options trading alongside screened stocks, so a Muslim user should treat the Options tab as outside the Islamic Window and confine activity to screened equities and ETFs.

Is day trading halal?

Cash day trading of screened shares is not barred by AAOIFI's ownership rules; Standard No. 21, item 3/7, permits selling a share once the sale formalities are complete and liability has transferred, even before final settlement. What is barred is margin on interest and short selling. Scholars' remaining concerns about day trading relate to speculative intent and conduct rather than to the contract itself.