Zero Cost Strategy

AAA

DEFINITION of 'Zero Cost Strategy'

A trading or business decision that does not entail any expense upon execution. Zero-cost trading strategies can be used with a variety of investment types, including equities, commodities and options. A zero-cost business strategy might be to improve sales prospects for a home by decluttering all the rooms, packing excess belongings into boxes and moving the boxes to the garage. Zero cost strategies often involve the simultaneous purchase and sale of an asset such as that both costs cancel each other out.

INVESTOPEDIA EXPLAINS 'Zero Cost Strategy'

One example of a zero-cost trading strategy is the zero-cost cylinder. In this options trading strategy, the investor works with two out-of-the money options, either buying a call and selling a put or buying a put and selling a call. The strike price is chosen so that the premiums from the purchase and sale effectively cancel each other out. Zero-cost strategies help reduce risk by eliminating upfront costs.

RELATED TERMS
  1. Call

    1. The period of time between the opening and closing of some ...
  2. Option

    A financial derivative that represents a contract sold by one ...
  3. Zero Cost Collar

    A type of positive-carry collar that secures a return through ...
  4. Strike Price

    The price at which a specific derivative contract can be exercised. ...
  5. Put

    An option contract giving the owner the right, but not the obligation, ...
  6. Cylinder

    A term used to describe a transaction, involving two derivatives, ...
RELATED FAQS
  1. What is the difference between a zero-coupon bond and a regular bond?

    The difference between a zero-coupon bond and a regular bond is that a zero-coupon bond does not pay coupons, or interest ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    Cutting Edge Options Trades: The Zero-Premium Hedge

    This options trade is essentially free and can have huge profit potential, but it's not without its risks.
  2. Options & Futures

    Trading Options With The Zero-Cost Cylinder

    The zero-cost cylinder allows traders to effectively trade the market while protecting their downside.
  3. Stock Analysis

    What's DISH’s Strategic Direction In The Industry?

    Telecommunications industry has evolved from being a backwater of ultra-conservative utility-like stocks to a high-growth area for cutting-edge investors.
  4. Stock Analysis

    What Are Kinder Morgan’s Plans For Growth In 2016?

    One thing investors likely love about Kinder Morgan is its robust backlog of future projects, like growing its generous dividend by 10% per year.
  5. Economics

    Iron Ore Market: Falling Into The Hands Of A Few

    The big iron ore mining companies have embarked on a drive to increase supply, reduce cost, and take market share.
  6. Professionals

    Are Alternative Mutual Funds, ETFs Right for You?

    Alternative mutual fund and ETFs are gaining popularity but are they a good idea for your regular Joe investor?
  7. Stock Analysis

    Why Should You Invest In Stratasys Today?

    When Stratasys pre-announced its fourth-quarter earnings, management highlighted that its MakerBot acquisition was underperforming expectations.
  8. Investing

    What's a Monopolistic Market?

    A monopolistic market has a significant number of characteristics of a pure monopoly. Though there may be more than one supplier, the market has high prices, suppliers tightly control availability ...
  9. Trading Strategies

    How Social Impact Investing Works

    Social impact investing is changing the way investors and the government effect change, delivering quantifiable results and financial returns.
  10. Investing

    What's Capitalization?

    Capitalization has different meanings depending on the context.

You May Also Like

Hot Definitions
  1. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  2. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  3. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  4. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  5. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  6. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
Trading Center