Derivatives let you trade things other than price and are important in hedging against certain types of risk. I don’t think the point is to invest in them so I agree it seems like gambling for most people.

If it is insurance call it insurance and regulate it as such.

But today we are the point where we’re trading each others insurances betting on whether they will be triggered or not. That is bonkers.

> But today we are the point where we’re trading each others insurances betting on whether they will be triggered or not.

Who is “we” ? You don’t have to trade anything you don’t want to.

> That is bonkers.

Why?

Why is it bonkers though? In a complete free market, everybody does whatever they want and as a result you get the best deal on your insurance premium.

Not inherently, when the numbers get big - strange things happen. It's not unreasonable that there would be insurance of insurance - it's also not unreasonable that there would be market traded contracts for the insurance of insurance. Provided that all parties can maintain their obligations under the contract... which may be a dubious/untested claim.

Let's say you invest in green energy. But as a hedge, you buy some deep OOM oil options.

Should you call that insurance as well?

You can invest in oil companies instead. Why do you need leverage? Why do you have the expectation of making 100X from a 2X price increase?

They're a lot cheaper than buying the actual stock, because there's every chance they'll expire worthless- and when you're hedging, you think they will probably expire worthless, too.

Problem is that the person who sells the option to you literally cannot guarantee that they can pay you because there is an infinite downside to them.

A "person" can't sell a naked option, this can only be done by bigger companies with a margin account, and will be margin-called when the price approaches the strike price.

The point is, should call options used for hedging regulated as insurance?

Margin accounts aren't that exclusive. I opened a margin account just because but I've never dipped into it. It's just a tool and if you know how to use it, good for you.

Margin accounts may not be, naked options seem to be.

In any system you aim to stabilize you don’t want unregulated factors with exponential effects.

There's a balance between stability and progress, and we seem to be at about the right spot.

Anyway your argument to regulate hedge trading as insurance is lacking.