IBANK 6.3.4 Capital Charges — 'Long Cash and Long Put' or 'Short Cash and Long Call'

(1) For a position that is 'long cash and long put' or 'short cash and long call', the capital charge is calculated by multiplying the market value of the underlying security by the sum of the specific and general risk capital charges for the underlying, and then subtracting the amount by which the option is in-the-money (bounded at zero).

Guidance
1 In cases (such as foreign exchange transactions) where it is unclear which side is the underlying security, the underlying should be taken to be the asset that would be received if the option were exercised. In addition, the nominal value should be used for items if the market value of the underlying instrument could be zero (such as in caps, floors and swaptions).
2 Some options have no specific risk (such as those having a profit rate, currency or commodity as the underlying security); other options on profit-rate-related instruments and options on equities and stock indices, however, would have specific risk.
(2) In the simplified approach, the capital charge is:
(a) 8% for options on currency; and
(b) 15% for options on commodities.
(3) For options with a residual maturity of less than 6 months, an Islamic banking business firm must use the forward price (instead of the spot price) if it is able to do so.
(4) For options with a residual maturity of more than 6 months, the firm must compare the strike price with the forward price (instead of the current price). If the firm is unable to do this, it must take the in-the-money amount to be zero.
Derived from QFCRA RM/2015-2 (as from 1st January 2016).