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Zero Premium Option


An option combination which provides a payoff virtually without paying or receiving a premium by either the seller or the buyer. However, trading such an option is not necessarily costless (traders incur transaction costs on their positions). Examples of such an option include a zero premium collar, an equity risk reversal, a zero-cost option, etc.

The zero premium option is also known as a premium-neutral option, a costless option, and a premium-free option.


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