Problem
I own a business that burns a million dollars a year of some fuel, and I cannot easily pass on increases in its price to my customers. Therefore, I trade futures and options to protect myself against increases.
a. When I trade futures and options am I purchasing a form of insurance or am I just speculating? How would you distinguish between insuring yourself and speculating?
b. Might it be reasonable to say that I am insuring because my risks involve delivery of a real commodity, while a speculator is simply gambling?
c. If, say, I buy a call option to protect myself against a price increase, is the person who writes it a speculator or a seller of insurance? (A call gives me the right to purchase the commodity at a predetermined "strike" price.)
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.