Options trading in the Saudi market: Your Complete Guide to 2025

Options trading in the Saudi market: Your Complete Guide to 2025

Welcome to your step-by-step guide to entering the world of options trading on the Saudi Stock Exchange. If you're looking for an advanced investment tool that can give you opportunities for high returns, or a way to protect your portfolio from market volatility, you've come to the right place. In recent years, the Saudi derivatives market has grown significantly, and single stock options have become available to a larger number of listed companies, opening up new horizons for retail and institutional investors alike. This guide is designed to take you from a beginner who has no idea what options are, to an informed investor who understands their mechanics, benefits, risks, and how to trade them effectively and safely within the Saudi market. We will break down complex concepts into simple and clear explanations, and provide you with practical steps to start your investment journey. Whether your goal is to speculate for quick profits or hedge against future risks, a deep understanding of options contracts will give you a significant competitive advantage in the investment world. Get ready to discover how this powerful financial instrument could completely change your investment strategy in 2025.

What are options contracts? A simple explanation for beginners in investing

To make it as simple as possible, imagine you want to buy a piece of land that you expect to appreciate in the coming months, but you don't have the full amount right now. You agree with the landowner to pay a small "deposit" in exchange for Right to buy the land at an agreed price (e.g. SAR 100,000) over a period of three months. During this period, if the price of the land increases to SAR 150,000, you can exercise your right and buy it at the old price and make a profit. If the price drops, you can simply relinquish your right, and your only loss is the deposit you paid. Options contracts work on a very similar principleIt's not stocks. They are not stocks, they are Contracts that give you the right, but not the obligation, to buy or sell a particular financial asset (e.g. Aramco shares) at a specific price (called the strike price) within a specific period of time (the expiration date). In exchange for this right, you pay a small amount called Premium, which in our example is the down payment. The big advantage here is that you can control a large number of shares for a very small amount compared to the price of buying them outright, which opens up opportunities and risks that we'll dive into later.

Why trade options? Discover the power of leverage and protect your investments

You may ask, why am I learning this complex instrument instead of continuing to buy and sell stocks directly? The answer lies in two key features that traditional stocks don't offer: Leverage and hedging.

First, leverage: Options allow you to control a large amount of shares at very little cost (the value of the premium). Let's say you expect a stock with a price of 100 riyals to rise. Instead of buying 100 shares for SAR 10,000, you can buy one option contract (representing 100 shares) that gives you the right to buy them at SAR 100, and this contract may cost you only SAR 500. If the stock price rises to 110 riyals, the value of your contract will increase exponentially, and you may make a profit of 100% or more on your invested amount (500 riyals), whereas if you had bought the shares directly, your profit would have been only 10%. This is the power of profit amplification.

Second, Hedging: Imagine you own a large stock portfolio and are afraid that the market will fall in the next period due to bad economic news. Instead of selling all your stocks, you can buy Put Options. These contracts act as an insurance policy for your portfolio; if the value of your stocks actually goes down, the value of the options you bought will go up, and the profits you make from the options will offset a large portion of your stock losses. In this way, you protect your capital from extreme volatility without having to liquidate your long-term investments.

Mastering the basics of options: Essential concepts to know before you start

Before you take your first steps into the world of options trading, it is essential that you master the basic language and concepts that govern this market. Just like learning the rules of the road before driving, understanding these fundamentals will prevent you from making costly mistakes and enable you to make informed decisions. This part of the guide is the cornerstone of your learning journey. We'll cover the fundamental differences between the two main types of options: Call and Put options, and we'll show you when to use each to achieve your investment goals. Next, we'll break down three key terms that form the backbone of any option contract: Strike Price, Expiration Date, and Premium. Your understanding of these terms is not just theoretical knowledge, it is the tool that will enable you to read the market and properly analyze opportunities. Ignoring these fundamentals is like sailing on a rough ocean without a compass, so give this part your full attention to ensure you build a solid knowledge base from which to launch your journey to success.

Call vs. Put: How do you choose the best fit for your goal?

In the world of options, there are only two trends you can bet on: Up and down. Each trend has its own tool.

Call Option: This is your option when you are optimistic and expect that the price of the underlying stock or asset will rise. When you buy a call option, you get the right to buy 100 shares of the asset at the specified strike price, until the expiration date. Your goal is for the actual market price of the stock to rise above the strike price, making your "call right" valuable, as you can buy at a cheaper price than the market price.

Put Option: This is your option when you are pessimistic and expect the stock price to fall. When you buy a put option, you get the right to sell 100 shares of the asset at the specified strike price. Your goal is for the actual market price of the stock to fall below the strike price, making your "put right" valuable, as you can sell at a higher price than the market price.

Deciphering options terminology: Exercise price, expiration date, and premium

To fully understand an option contract, you need to understand three key components that define its value and behavior. These are terms you'll see in every options trade you make, so mastering them is a must.

Strike Price: That's it "Agreed Price" in the contract, which entitles you to buy (in the case of a Call) or sell (in the case of a Put) the underlying asset. When choosing an option contract, you will find a long list of available strike prices above and below the current stock price. The choice of strike price is a very important strategic decision; the closer the strike price is to the current market price, the higher the chance of a successful trade, but the higher the contract price (premium), and vice versa.

Expiration Date: That's it "expiration date" Contract. Each option has a specific life span, which can be days (weekly options), months, or even years. After this date, the contract becomes worthless and the buyer loses any rights associated with it. The further away the expiration date is, the more time the stock has to move in the direction you expect, and therefore the higher the value of the contract (premium). Time is not on the option buyer's side, as the value of the contract erodes daily as the expiration date approaches, which is known as "Time Value Erosion".

Premium: That's it "Contract Price" that the buyer pays to the seller to obtain the said rights. The market price of the premium is determined based on several factors, the most important of which are the current stock price compared to the strike price, the remaining time until the expiration date, and the level of volatility in the stock. For the option buyer, the premium represents Maximum amount he can lose in the deal. For the seller, it represents the maximum profit they can make.

Balancing opportunity and risk in options trading: Your guide to making smart investment decisions

The allure of options trading lies in its immense potential to amplify profits, but this power comes with inherent risks that must be understood and managed wisely. Ignoring the risks and focusing only on the potential profits is the fastest way to lose capital. A smart investor isn't one who avoids risk altogether, but one who Those who understand it, measure it, and take proactive steps to control it. In this section, we'll dive deep into the biggest advantage of options, leverage, and show with examples how a small amount of money can yield returns that far exceed a traditional stock investment. On the other hand, we will very clearly highlight the other side of the coin: Risk. We'll explain the worst possible scenarios, not to scare you, but to equip you with the knowledge to avoid them. The goal is to enable you to balance the scales between ambition and caution, to make investment decisions based on full awareness, not hope or guesswork.

The big advantage of options: How to maximize your earning potential with less capital?

The primary feature that attracts investors to the world of options is capital efficiency, otherwise known as leverage. Let's illustrate this with a simple numerical example. Let's say you are very bullish on the stock of Saudi Telecom Company (STC) which is currently trading at 40 riyals per share, and you expect it to rise to 45 riyals over the next month.

Scenario one: Buying shares directly

I decided to invest 8,000 riyals to buy 200 shares (200 shares x 40 riyals).

If the price rises to 45 riyals as you expected, your shares will be worth 9,000 riyals (200 shares x 45 riyals).

Your net profit will be SAR 1,000, an ROI of 12.5% (1,000 ÷ 8,000).

Second scenario: Buying Call Options

Instead of buying the stock, I found a call option contract for STC stock with a strike price of 40 riyals and an expiration date a month later, and the contract (premium) costs 2 riyals per share. One contract represents 100 shares, so the cost of the contract is 200 riyals.

I decided to purchase 4 contracts with a total cost of Only 800 Riyals (4 contracts x 200 riyals).

When the share price rises to 45 riyals, the value of your contract increases dramatically. Let's assume that the new premium is now 5 riyals per share (because the stock is now 5 riyals above the strike price).

The value of your four contracts becomes 2,000 riyals (4 contracts x 500 riyals).

Your net profit will be 1,200 riyals (2,000 - 800), a return on investment of 150% (1,200 ÷ 800).

Notice how using only 10% of your original capital, you were able to realize a higher profit and a 12x greater return on investment. This is the true power of leverage in options.

The risks of options trading: What is the worst-case scenario and how can you avoid it?

For every great opportunity, there is a risk that you need to be fully aware of. In options trading, risks are clear and measurable, and understanding them is your first step towards avoiding them.

Loss of the entire premium (for the buyer): This is the most common risk. If you buy an option contract (Call or Put) and the stock price doesn't move in the direction you expected before the expiration date, or doesn't move enough to cover the cost of the premium. The contract will expire and you will lose the entire amount you paid (bonus). The worst-case scenario for an option buyer is to lose 100% of their investment in that trade. The good news is that your loss is limited and cannot exceed this amount.

Unlimited losses (for the seller): Herein lies the greatest danger in the world of options. If you "Writing" or selling a Naked Call option without owning the underlying stockand you're surprised by a big spike in the stock price, your losses are theoretically "Unlimited". Because you are obligated to provide the shares to the buyer at the agreed upon price (strike price), while the market price is skyrocketing. Beginners should avoid selling options that are not fully covered So they gain experience and knowledge.

Time Decay: Time is an option buyer's enemy. Every day that passes, the option contract loses part of its value even if the stock price doesn't change. This means you're not only fighting the price trend, you're also fighting time.

To avoid these pitfalls, here's a quick checklist:

• Do I fully understand how this works? (Don't trade what you don't understand).
• What is the maximum amount I can lose on this trade? (It should be an amount you can afford to lose.)
• Do I have a solid reason and clear expectations for the direction of the stock? (Avoid trading based on rumors).
• Is the length of time for the end date enough to meet my expectations? (Don't choose dates that are too close unless you're an experienced day trader.)
• Is the deal part of a larger strategy or just random speculation? (Commit to a clear investment plan).

Your step-by-step guide to starting options trading in the Saudi market

Now that you're familiar with the theoretical concepts, advantages and risks, it's time to move on to the practical side. Starting to trade options in the Saudi market may seem complicated, but it's actually an organized process that can be broken down into clear and straightforward steps. This section is designed to be a roadmap for you, guiding you through each stage of the process, from the most important decision you'll make - choosing a reliable and licensed broker, through the technicalities of opening and activating your account to trade derivatives, to the practical skills needed to read the Options Series and make your first decision. We'll conclude with a practical application that shows you what your first trade might look like. The goal of this guide is to demystify and de-mystify associated with getting started, providing you with the confidence and information needed to execute your first trades correctly and safely. Remember that Correct execution is just as important as correct analysis.

Step 1: How to choose the best licensed broker for options trading in Saudi Arabia?

Choosing a broker is the cornerstone of your options trading journey, a decision that should never be underestimated. The broker is your gateway to the market and the platform on which you will carry out all your operations. When choosing, consider the following criteria:

Licensing and regulation: This is the most important criterion of all. 100% is 100% sure that the broker Officially licensed by the Saudi Capital Market Authority (CMA). This ensures that your funds are monitored and protected in accordance with the Kingdom's regulations. You can check the list of licensed companies on the Authority's official website.

Trading commissions: Commissions vary from broker to broker. Look for a clear and transparent commission structure. Some brokers charge a fixed commission per contract, while others charge a percentage. Compare them and choose the one that suits your expected trading volume.

Trading platform: Is the platform easy to use and stable? Does it offer advanced technical analysis and charting tools? Is it fast in executing orders? Most brokers offer demo accounts. Take this opportunity to try out the platform before depositing real money.

Available assets: Make sure your broker offers options trading on the stocks you are interested in. The list of companies available for options trading in the Saudi market is constantly expanding, make sure your broker keeps up with this expansion.

Customer service and support: You will definitely need technical support or assistance at some point. Choose a broker that offers responsive and supportive customer service in Arabic.

Step 2: Easily open and activate your options trading account

Once you've chosen the right broker, the next step is to open a trading account. The process is very similar to opening a regular stock trading account, but with an important extra step.

Apply online: Visit your chosen broker's website and start the account opening process. You will need to fill out a form with basic personal and financial information.

Upload the required documents: You will usually be asked to provide a copy of your national ID or residency, and proof of national address.

Approve the derivatives agreement: This is the extra step. Since options are considered high-risk investment instruments, your broker will ask you to read and agree to Agreement on Derivatives Trading. This agreement explains the risks involved in this type of trading and confirms that you are aware of them. You may also be asked to answer some questions to assess your experience and risk tolerance.

Account activation: After your application is reviewed and approved, your account will be activated. You will receive login credentials to the trading platform.

Funding the account: The final step is to deposit funds into your investment account via the broker's payment methods (e.g. bank transfer) to start trading.

Step 3: Read the "Series of Options" and choose the right contract for your strategy

"The Option Chain is the dashboard where you'll find all the option contracts available for a particular stock. It may seem overwhelming at first, but understanding its basic components is simple. When you open the Option Chain for a stock, you will see a table that is usually divided into two sections: Calls on one side, and Puts on the other.

In the center, you'll find a list of available Strike Prices. For each strike price, you will find associated information such as:

Ask price: The price at which you can buy the contract.

Bid price: The price at which you can sell the contract.

Last price (Last): The last price at which the contract was traded.

Volume: The number of contracts traded that day.

Open Interest: Total number of outstanding contracts that have not yet been closed.

Advice for beginners: When choosing a contract, focus on contracts that have High trading volume and high open interest. This is an indication of Good liquiditywhich means it will be easier for you to buy and sell the contract at a fair price and without major price slippages. Your choice of strike price and expiration date depends entirely on your strategy, your analysis of the stock's direction and the timeframe of your expectations.

Step 4: Practical application to successfully execute your first option trade

Let's make it practical. Let's say you did your analysis and came to the conclusion that Al Rajhi Bank's stock, currently trading at 75 riyals, will rise in the coming weeks. You decide to execute your first trade by buying a call option contract.

Access the trading platform: Log in to your account with the broker.

Find the arrow: Search for the Al Rajhi Bank stock symbol.

Open the options string: From the arrow page, choose "Options" or "Options" to view the options chain.

Choose an end date: Let's say you choose an expiration date a month from now.

Choose an execution price: I decided to choose an execution price close to the current price, say 76 riyals.

Specify the type of command: Go to the Calls side at a strike price of 76 riyals. You will find the Ask price, say 1.50 riyals (i.e. 150 riyals per contract). Click on the Ask price to initiate the buy order.

Fill in the order details:

Operation: Buy (Buy to Open).

Quantity: 1 (to buy one contract representing 100 shares).

Command type: You can choose a Market order to buy immediately at the best available price, or a Limit order to set the maximum price you are willing to pay (e.g. 1.50 riyals). For beginners. Use the limit order to control the cost of the transaction.

Review and confirm: You will see a summary screen showing the details of the transaction: Its type, its total cost (SAR 150 + commission), and its impact on your account. Review it carefully and then confirm the order.

With these steps, you have successfully executed your first option purchase. Now all you have to do is monitor the stock's performance and the value of your contract until you decide to close the trade or leave it until the expiration date.

The Shari'ah ruling on options trading: Is it halal or haram?

In our society, Sharia compliance is a key criterion for many investors before entering into any financial transaction. Options trading, as a modern and complex financial instrument, has sparked a wide debate among contemporary scholars and jurists about its legality. It is very important to emphasize that this section Does not provide a definitive legal opinionFatwa is the prerogative of recognized Shari'ah bodies and well-established scholars. The goal here is to Objectively present different points of view and reasons for themTo help the investor gain a preliminary understanding of the Sharia issues related to options, and to enable them to ask the right questions when consulting specialized experts. Researching the Sharia ruling is not just a routine procedure, but an integral part of the Muslim investor's responsibility towards his investments, to ensure that his gains are blessed and in line with his values and principles.

What do the scholars say? A look at the opinions of Shari'ah authorities on options contracts

The opinion of contemporary jurists on option contracts is basically divided into two main groups: Those who believe they are prohibited and those who believe they are permissible with restrictions.

The first team: Prohibitionists (see prohibition)

This team bases its opinion on the fact that options contracts in their current form in the financial markets contain elements that make them incompatible with Shari'ah, the most prominent of which are:

Uncertainty: They consider the sale and purchase of an "abstract right" that is not directly linked to a tangible asset to be a form of gharar, as the outcome of the contract is uncertain and depends on future events.

Gambling: This team argues that the nature of options, which can result in a very large profit from a small amount or a loss of the entire amount, is very similar to gambling, as it is not based on real economic activity but merely betting on price fluctuations.

It's not a sale: They argue that what is being sold is not a good or service, but a mere "promise" to sell or buy, which does not meet the conditions for sale in Islamic jurisprudence. Some of the most prestigious jurisprudence councils have issued resolutions adopting this view.

The second team: Those who allow it with conditions (see permissibility)

This group believes that options contracts can be jurisprudentially adapted and viewed as a legitimate financial instrument if they are used within certain controls, and their argument is based on:

The analogy to the "conditional option" or "deposit": They compare the premium paid to the deposit paid by the buyer to retain the right to finalize or back out of the sale, which is permissible in jurisprudence.

The realization of interest (Maslaha): They believe that options, especially when used for the purpose of HedgingIt achieves a great interest for investors and companies by protecting their assets from risks, and this interest is considered a legitimate interest.

Contemporary need: They recognize that these instruments have become a necessity in modern financial markets to manage risk, and can be adapted to be Sharia-compliant.

Sharia-compliant investment controls in the world of options

Based on the views of the panel that permits options trading with controls, an investor seeking Shari'ah compliance must adhere to several conditions when dealing with this instrument. These controls aim to minimize the elements of gharar and gambling and focus on real investment and risk management.

The most important of these proposed controls are:

Dealing with permissible assets: The underlying asset of the option contract (stock) must be of a company whose activity Halal and Sharia-compliant. It is not permissible to trade options on shares of usurious banks or companies engaged in forbidden activities.

Intent and purpose of trading: Many scholars make a distinction between using options for the purpose of Risk Hedging (which they tend to favor), and between using them for the purpose of Purely speculative (which they consider to be akin to gambling). An investor who buys a Put option to protect a stock they already own is different from one who buys a Call option to make a bet.

Arrest and possession: One of the conditions set by some jurists is that there must be a real intention to own the shares when exercising the purchase right, not just selling the contract before expiration to make a profit from the price difference.

Avoid selling what you don't have: There is a near unanimous consensus on the prohibition of Naked Call WritingThis is because it falls under the category of "selling what you don't have," which is forbidden by law, in addition to its high financial risks.

Important advice: Given the complexity of the issue and the disagreement among scholars. It is essential for every investor to consult a reliable Shari'ah organization or a scholar specialized in the jurisprudence of financial transactions He trusts his knowledge and religion before making any decision, so that his heart is reassured and his investments are based on a clear legal basis.

Options trading strategies for beginners: Start with confident steps

Now that you're familiar with the basics, risks and practical steps, it's time to learn some simple strategies that you can apply as a beginner. The world of options strategies is very vast and complex, with advanced structures with exotic names like Iron Condor and Butterfly Spread. But for starters, you should focus on the simplest and most straightforward strategies. Success in the beginning doesn't mean making astronomical profits, it means understanding what you're doing and executing your trades correctly while effectively managing risk. In this section, we will only cover two basic strategies: One to bet on the market going up (buying a call option), and another to protect your investments from going down (buying a put option). These two strategies form the bedrock of most advanced formulas, and mastering them will pave the way for you to learn more in the future. Start with small, confident steps, and focus on learning and practice before you think about big profits.

The Long Call strategy: How do you profit from a stock's bullish outlook?

This is the most common and simple strategy for market optimists. If you have strong analysis or information that suggests that the price of a particular stock is about to rise, you can use the "buy call option" strategy to capitalize on the move at minimal cost.

When to use it?

Before a company reports quarterly earnings that are expected to be strong.

When there is positive news about a particular sector (e.g. rising oil prices for energy stocks).

When a stock breaks through an important technical level on the chart, signaling the start of a bullish wave.

How does it work?

You do Buying a Call Option contract on the stock you expect to rise.

Premium is paid for the right to buy 100 shares at the specified strike price.

If your predictions come true and the stock price goes up above the strike price, the value of your option contract will increase.

You have two options to make a profit:

The easiest and most common: Selling the same option contract in the market at a higher price than you bought it for, and the profit is the difference.

Exercise the right: Hold the contract until the expiration date and exercise your right to buy the shares at the low strike price, then sell them in the market at the high price. (This requires more capital).

The big advantage: Your risks are quite limited. The worst that can happen is that you get it wrong and the stock price goes down or stays flat, in which case your maximum loss will be Only the amount of the bonus you paid. Your earning potential is, in theory, unlimited as long as the stock continues to rise.

Long Put strategy: Insure your portfolio against a falling market

This strategy is your shield of protection. If you own shares in a particular company and are worried that its price might drop in the near future, but you don't want to sell them because you are a long-term investor, you can use the "buy put option" strategy as an insurance policy.

When to use it?

When you own a large number of shares of a particular company and before its financial results are announced, which can be disappointing.

When there are negative economic indicators that may affect the market as a whole (e.g. interest rate hikes).

If you believe that a particular stock is overvalued and it's time for a price correction.

How does it work?

You do Buying a Put Option contract on the stock you own and are afraid it will fall.

Premium is paid for the right to sell 100 shares at the specified strike price.

If what you feared happens and the stock price drops Yes, the value of the contract you bought will go up.

The profit you realize from the option will offset all or part of the loss you incurred in the value of your original shares.

The big advantage: This strategy allows you to Protect your capital at a small, predefined cost (the value of the premium). Instead of selling your shares at a loss and regretting it later if they go back up, you can hold them and insure them against a potential downturn. It's a smart way to manage risk and gives you peace of mind in times of market uncertainty.

Conclusion: Is investing in options the right decision for you?

We have reached the end of our comprehensive guide. We've sailed through the world of options trading, from simplifying its basic concept, through understanding its mechanics and terminology, weighing its opportunities and risks, to the practical steps to start trading in the Saudi market and reviewing some simple strategies. It is now clear that options are a powerful double-edged financial tool: They can be an effective way to amplify profits and protect a portfolio, but at the same time they can lead to rapid losses if used ignorantly or recklessly.

The answer to the question "Are the options right for me?" depends entirely on you. It depends on your investment goals, your level of risk tolerance, and your willingness to put in the time and effort for continuous learning. Options are not a get-rich-quick scheme, but rather a tool for the informed investor who analyzes and develops a clear plan for each trade he or she enters. If you're looking for a new level of control over your investments and are ready for the learning curve, options may be the right choice for you. If you prefer simple, low-risk investing, it's best to stay away from them for now. The decision is yours, and we hope this guide has equipped you with the knowledge to make it with confidence.

Frequently asked questions about options trading in the Saudi market

1. What is the minimum amount required to start trading options?

There is no official minimum, but the amount depends on the "bonus" price of the contract you want to buy. Some contracts may cost less than 100 riyals, while others may cost thousands of riyals. It is wise to start with a very small amount that you can afford to lose entirely as part of the learning process.

2. Can I trade options on all stocks listed on the Saudi market?

No, not yet. Options trading is now available on a growing range of market-leading stocks. The list includes major companies such as Saudi Aramco, Al Rajhi Bank, Sabic, Saudi Telecom (STC), Ma'aden, Alinma Bank, and Saudi Kayan and others. Tadawul KSA is continuously expanding this list, so it is always important to check the latest list of available stocks with your financial broker or on the official Tadawul KSA website.

3. Are option trading profits taxable in Saudi Arabia?

As of the date of writing this guide, there is no tax on capital gains from investing in the financial markets for individuals in Saudi Arabia. However, laws may change, and it is always best to consult a tax professional or follow the latest updates from the authorities.

4. Can I lose more than the amount I invested? Can I go into debt?

If you Buyer options (Long Call/Long Put), your maximum loss Completely limited with the amount you paid for the contract (the premium). It's impossible to lose more than that or go into debt. If you Seller For options (especially uncovered puts), your losses can be unlimited, which is something beginners should absolutely avoid.

5. What is the difference between American options and European options?

The main difference lies in when the right is "exercised". American options It can be exercised at any time before or on the expiration date. As for European options They can only be exercised on the expiration date. Most of the single stock options in the Saudi and global market are of the American type, which gives more flexibility to the holder.