Zero Cost Options

Discussion in 'Options' started by jjjfinance, Aug 10, 2008.

  1. What is Zero Cost Option? How does it work? Any risk associated with it?
  2. MTE


    Never heard of zero cost options, but I'm not saying they don't exist.

    Are you, by any chance, referring to a zero cost collar?
  3. once someone mentioned zero cost option.. meaning zero percent probabilty of making a loss.

    ha ha

    now we all know that , all the taunted options strategies to make consistent income, actually dont exist. ie. do something consistently and make money on it . time after time.. the laws of probability will catch up sooner or later like a coin toss.

    I pay zero $ for 10 free EQUITY trades /month. I would love to pay zero dollars for trading OPTIONS.. any one know of any deal?
  4. If loss= loss of trading capital: yes they exit. You did not know about it?

    Also if you want to make a return equal to bonds, you can make that for certain and have a non-zero probability to earn more than the return on the bond/treasury/etc.
  5. Your question can have many interpretations.

    Here is one meaning: If you split the strike of a synthetic stock, buy a call, sell a put, where both put and call are OTM, but with the put strike equal to or a bit higher than the strike of obtained using the put-call symmetry (the strike of the put which equivalent to the strike of the call using the call-put symmetry), then you should get no debit (and even a credit), but you still have to post a margin on the put side.
  6. Sure. Try in JPY or in euro.:D ( I'm kidding)

    OP, some exotic option premiums on OTC market can be paid at maturity. That means you pay nothing since you make the deal, but at maturity, you will finally pay the premium (plus an interest)whether the option would be in or out. It's often a marketing effect. Sometimes for cash management reasons.

    But I'm not sure that was the original meaning of your question. As stated above, you may talk about zero cost collar, sometimes called risk-reversal.
  7. kxvid


    Are you referring to discount options? Meaning the intrinsic value of the option is higher than the asking price?

    If you want to see what im talking about, look up .VIX put options. You can see that they are actually trading at lower than intrinsic value. This is because the market is strongly expecting a increase in volatility, not a decrease. Since these are european style options meaning they are settled on the expiration, this isnt an arbitrage opportunity. However, if you ever do see american style options trading at less than intrinsic value (highly unlikely) buy as many as you can for a risk free profit.
  8. addy


    I have never heard of Zero Cost Option either but this could be another shot at what was meant. Although I doubt it.

    Anyway, by selling in the money puts (called a naked stock), I usually like going 2 to 3 months out, you are actually bullish on a stock. This puts money into your account at the time that you sell the puts.

    You basically profit if the stock goes higher or stays the same.:D