Zero Cost Strategy


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.

BREAKING DOWN '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.

  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. Strike Price

    The price at which a specific derivative contract can be exercised. ...
  4. Cylinder

    A term used to describe a transaction, involving two derivatives, ...
  5. Put

    An option contract giving the owner the right, but not the obligation, ...
  6. Zero Cost Collar

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