We examine how the option demand of various financial institutions influences the crash risk premium in individual stock options. We find that only hedge funds’ speculative demand has a significant impact. Specifically, their demand for put options increases the premium for crash insurance. This effect is concentrated in options with high hedging costs and stems from hedge funds’ long naked put positions. We provide evidence that hedge funds purchase out-of-the-money put options to speculate on the intermediate, not the extreme, left tails of individual firms. They use these options to amplify movements in underlying stock prices and are willing to pay a premium for the embedded leverage, as suggested by Frazzini and Pedersen (2022).