Option Contracts in Shari[ahBroadly, the Shari[ah options are classified from the perspective of the
law and the option stipulator. In other words, some options are created by
natural law and others are created following contracting on a tangible subject
matter. Options created by the law are those options that exist for the interest
of both or one of the contracting parties. These options do not need an
agreement for creating them.^3 Options that are created by the law include,
among others, khiyar al-majlis (option of session). The contracting parties are
entitled by law to terminate the concluded contract as far as they did not
disperse from the place of the contract. This form of option is automatically
granted to the contracting parties by the saying of the Prophet (pbuh) “both
the buyer and the seller (contracting parties) have an option (to terminate the
contract) so far as they did not disperse”.^4 Under this category comes the
majority of fiqh related options, such as khiyar al-[ayb (option for defect),
khiyar al-ru’yah (on sight option), khiyar al-tadlees (fraud option) and option for
violation of valid conditions stipulated in the contract.^5
The contractual options are created by the agreement of the contracting
parties. These options exist only when the contracting parties choose to
attach a particular right to the contract. Example of contractual options is
khiyar al-shart or conditional option. The concept of financial options falls
under the category of contractual options, hence many writers on options in
Islamic finance tried to compare financial options to contractual options due
to their similarities in features and objectives.^6
4. Basic Features of Shari[ah Options
The large number of options^7 that are discussed in the fiqh literature were
allowed by the jurists because they serve certain valid and permissible
objectives for the contracting parties. These objectives may be summarized in
the following:
- These options are allowed in order to ponder on the viability of the
deal and obtain information on the deal. Generally, the jurists
interpret the risk to be avoided by introducing these options in the
context of fraud (ghabn), misrepresentation (tadlees) and misconduct
as indicated by Ibn Hibban’s case.^8 However, the general principles
of Shari[ah suggest that options are introduced for various purposes
provided the stipulation of an option is within the principles of
Islamic law. This is because the need for options will differ
depending on the time and commodity.