No, under the majority scholarly position exchange-traded options are not halal, and that includes writing covered calls over ASX shares you already own. An option is a contract that sells a right rather than an asset, its price is a premium paid for that right, and the position recorded in the AAOIFI standards and by the OIC Fiqh Academy is that such contracts are impermissible to trade. Geared ETFs listed on the ASX borrow to magnify exposure, which makes them impermissible for a different reason, and instalment warrants embed a deferred loan. Bought puts used purely as insurance and covered calls have minority defenders, which this page sets out before explaining what a halal income investor on the ASX can do instead.
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What an ASX option actually is
The ASX describes an option as a contract between two parties giving the buyer the right, but not the obligation, to buy or sell an underlying security at a predetermined price at a specified future time. The buyer, called the taker, pays a premium to the seller, called the writer. On the ASX the standard contract covers 100 shares, options exist over shares, exchange traded funds and indices, ETF options are physically settled with European exercise, index options are cash settled, and ASX Clear stands between every buyer and seller. The ASX also lists short-dated index options over the S&P/ASX 200 that expire every business day, and MoneySmart's page on exchange-traded options, updated 4 August 2026, warns that short-dated options are very high-risk products marketed by some brokers with incentives.
Two features matter for the Shariah analysis. First, what changes hands is a right, not a share: the ASX says plainly that when you buy an option you do not buy a physical asset. Second, the premium is paid now for a deliverable that may never occur, and the contract itself trades on the market at a fluctuating price between people who mostly never intend to take or make delivery. Our halal investing hub covers the asset classes that do pass; this page is about the ones that do not.
Why the majority position excludes exchange-traded options
Classical contract law in Islam requires a sale to transfer a thing of value that exists and that the seller owns or is able to deliver; an option is neither a thing nor a usufruct but a bare right, and the jurists who drafted the modern standards concluded that such a right is not a proper object of sale. The second objection is gharar, uncertainty of outcome so large that one party's gain is the other's loss by construction: MoneySmart's own examples show a $3,000 premium either vanishing entirely or turning into $17,000, depending on a price move neither party controls. The third is that the exchange-traded form is a zero-sum wager settled in cash or by forced delivery, which brings it under the prohibition on maysir.
These are the grounds on which the AAOIFI Shariah standards, which Australian screening services and the AAOIFI screening guide rely on for equities, treat option contracts as impermissible, and on which the OIC's International Islamic Fiqh Academy reached the same conclusion earlier. We have not reproduced clause numbers because we did not fetch the standard text for this article; the position itself is not in dispute among the major standard-setters. A minority of contemporary scholars argue that a premium can be treated as compensation for a binding promise, and that view underlies the arguments for covered calls discussed next.
Covered calls: the argument for and the majority view against
A covered call, which the ASX calls a covered write or buy and write, is writing a call option over shares you already hold. The ASX's strategy page says the maximum profit on an at-the-money covered write is the premium, earned if the share finishes at or above the strike, and that the strategy suits a flat market and underperforms a rising one. MoneySmart's example has Sarah receive $3,000 for selling calls over 10,000 shares she bought at $5 with a $7 strike; if the price reaches $9 she must sell at $7, pocketing $23,000 but forgoing $17,000. The ASX notes the strategy is eligible inside an SMSF if the fund's investment strategy allows it.
The argument for permissibility runs: you own the shares, so there is no short sale; you are simply promising to sell at a price you are happy with; the premium is compensation for that promise; and the worst case is selling shares you already meant to sell. The majority answer is that the thing being sold is still the option contract, not the shares. The premium is consideration for a right that the buyer will trade on the ASX regardless of your intentions, the writer is bound while the taker is free, and a fee charged for giving a promise is treated by the standards as impermissible even where the promise itself is binding. Covered calls are therefore the most defensible form of options trading and still fall on the wrong side of the line for the majority. If you follow a scholar who permits them, keep the position fully covered, never roll into naked exposure, and treat the premium as income subject to the same purification discipline as mixed dividends.
Geared and inverse ETFs on the ASX
The ASX's exchange traded products page says geared ETPs generally involve the fund borrowing to gear its investment exposure or using over-the-counter derivatives, that an increase in the fund's cost of borrowing will likely reduce returns, and that inverse ETPs typically use short selling or synthetic OTC derivatives. The ASX requires both to carry a 'Complex' label. Betashares' GEAR fund illustrates the structure: it is internally geared, combines investor money with borrowed funds, manages a gearing ratio of 50% to 65% of total assets so that exposure runs between 200% and 286% of net asset value, charges 0.78% a year, and advertises itself as a way to avoid the costs of margin loans and CFDs.
The Shariah problem is not the magnified exposure in itself but how it is obtained. A fund that borrows at interest to buy shares is paying riba on your behalf, which fails the debt screens that exclude a company before you even reach its business. A fund that obtains the same exposure through swaps and futures is holding derivatives rather than assets. An inverse fund that short-sells is selling what it does not own. None of these passes, and the Australian halal ETFs covered in the halal ETFs on the ASX guide are ungeared long-only funds for exactly that reason. The margin loan that GEAR says it replaces is impermissible too, so the choice between them is not a Shariah choice.
Warrants and instalment warrants: why they resemble a loan
The ASX defines warrants as derivatives that derive value from an underlying instrument, divides them into trading warrants (equity, index, currency and MINI warrants, higher gearing, shorter dated) and investment warrants (instalments, endowments and structured products, longer dated), and explains that an instalment warrant gives exposure to a share by paying a portion of its price now, collecting dividends and franking credits during the life of the warrant, and then paying a final instalment to take ownership, rolling into a new series, or taking any residual value. Self-funding instalments apply dividends to reduce the final payment; Instalment MINIs add a stop-loss level.
Strip the labels away and an instalment warrant is a share bought with a part payment, the balance advanced by the issuer, and a cost for that advance built into the final instalment, with a put protecting the holder if the share falls below the loan. A deferred-price sale of shares is permissible in Islamic law when the price is fixed at contract and the buyer owns the shares; an instalment warrant is instead a derivative security issued by a bank, in which the holder owns a right against the issuer, the deferred amount carries a funding cost that behaves as interest, and the whole package trades on market. It fails on the same grounds as a margin loan with a put attached. Trading warrants fail on the same grounds as options.
Table: instrument, what you own, gearing or interest, verdict
| Instrument | What you actually own | Gearing or interest | Majority verdict |
|---|---|---|---|
| Bought call option | A right to buy 100 shares, no shares | Magnified exposure for a premium | Not permissible |
| Bought put option | A right to sell, no obligation | Premium at risk, no borrowing | Not permissible; minority allows as pure hedge on owned shares |
| Written covered call | Your shares plus an obligation to sell | None, but premium is a fee for a promise | Not permissible; minority allows |
| Written naked call or put | An obligation only | Unlimited or large losses, margin calls | Not permissible |
| Geared ETF (e.g. GEAR) | Units in a fund that borrows | Borrowing of 50% to 65% of assets at interest | Not permissible |
| Inverse ETF | Units in a fund that short sells or holds swaps | Short selling, OTC derivatives | Not permissible |
| Instalment warrant | A right against the issuer, not the share | Deferred balance with embedded funding cost | Not permissible |
| Shares bought outright | The shares | None | Permissible if the company passes screening |
Halal income alternatives for an ASX share investor
Most Australians who ask about covered calls want income from a portfolio that otherwise just sits there. The halal routes to that income are less elegant than a monthly premium but they exist, and several are listed on the ASX.
- Screened dividend shares: check each holding with the ASX share screening method and purify the small impermissible portion of each dividend.
- Halal equity ETFs on the ASX, which distribute the dividends of their screened holdings without any gearing or derivatives.
- Sukuk and sukuk ETFs, explained in the sukuk guide for Australian investors, for an income stream backed by assets rather than debt.
- Property and rental income held directly or through screened funds, which the MCCA Income Fund review covers as the closest Australian equivalent to a halal income product.
- Selling a small slice of growth shares each year, which produces the same cash as a covered call premium without selling anyone a right.
- Wakala-style and term-deposit alternatives described elsewhere on this site for the cash portion of the portfolio.
Compare these with the trading activity that often sits next to options on a broker's menu: the day trading verdict for Australia covers CFDs and intraday share trading, which fail for related reasons.
Our view: who should do what
An investor who already holds screened ASX shares and wants income should not open an options account; the majority position excludes covered calls, and the alternatives above produce comparable cash without the contract. An investor holding a geared or inverse ETF should sell it, because the fund borrows at interest or holds swaps, and should check whether any gain needs purification. An investor holding instalment warrants should let them run to maturity and pay the final instalment to own the shares outright, or sell, rather than roll into a new series. An investor who follows a scholar permitting covered calls should at least keep every position fully covered and treat the premium as income to be purified.
Anyone unsure whether a specific product on their broker's platform is an option, a warrant or a plain share can check the six-letter ASX warrant code or ask the is it halal verdict pages and the halal stocks hub before buying. Facts checked against asx.com.au, moneysmart.gov.au and betashares.com.au on 25 September 2026.
Frequently asked questions
Are covered calls halal?
Under the majority position, no. A covered call means selling an option contract over shares you own, and the premium is payment for a right the buyer can trade on the ASX, which the AAOIFI and OIC Fiqh Academy positions treat as an impermissible sale of a bare right and a fee for a promise. A minority permits them because the shares are owned and the promise is binding; if you follow that view, stay fully covered and purify the premium.
Is buying a put option to protect my shares halal?
The majority says no, because a put is still an option contract whose premium buys a right rather than an asset. A minority view accepts a bought put over shares you own as pure insurance with no gearing and no obligation, noting that MoneySmart describes exactly that use. If you want downside protection within the majority view, reduce the position size or hold cash instead of buying puts.
Are geared ETFs on the ASX halal?
No. The ASX says geared ETPs borrow to gear their exposure or use over-the-counter derivatives, and Betashares' GEAR, for example, runs a gearing ratio of 50% to 65% of total assets using borrowed funds. Borrowing at interest inside the fund fails the debt screen before the holdings are even considered, and inverse funds add short selling and swaps. Ungeared halal equity ETFs on the ASX are the permissible alternative.
Are instalment warrants halal?
No. An instalment warrant lets you pay part of a share's price now and the balance later while collecting dividends, but what you hold is a derivative issued by a bank, and the deferred balance carries a funding cost that behaves as interest, with a put protecting the holder. That is a margin loan in a different wrapper. Buying the shares outright, or on a genuine deferred-price sale with a fixed price, is the permissible route.
Is options trading halal if I never use margin?
No. Avoiding margin removes one problem, interest on borrowed funds, but the majority objection to options is about the contract itself: it sells a right rather than an asset, carries extreme uncertainty of outcome, and is settled as a zero-sum bet. MoneySmart's examples show a $3,000 premium becoming either nothing or $17,000 on the same price move, which is the gharar the jurists describe. Paying cash does not change that.
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What can a halal investor do for income instead of writing calls?
Hold screened dividend shares and purify the impermissible portion, use halal equity ETFs on the ASX that distribute dividends without gearing, add sukuk for asset-backed income, consider a screened property income fund such as MCCA's, and sell a small slice of growth holdings each year for cash. None of these matches a monthly premium exactly, but together they replace it without selling anyone a right over your shares.
