Zero-Cost Strategy

What Is a Zero-Cost Strategy?

The term zero-cost strategy alludes to a trading or business decision that doesn't involve any expense to execute. A zero-cost strategy costs a business or individual nothing while at the same time further developing operations, making processes more efficient, or effectively diminishing future expenses. As a practice, a zero-cost strategy might be applied in a number of settings to work on the performance of a asset.

How Zero-Cost Strategies Work

Utilizing a zero-cost strategy means there are no extra expenses to make improvements or increments to the activities of a business or other entity. As referenced over, an individual or business can cut future expenses, as well as rearrange and streamline its current processes by utilizing zero-cost strategies.

Zero-cost trading strategies can be utilized with various assets and investment types including equities, commodities, and options. Zero-cost strategies additionally may include the simultaneous purchase and sale of an asset with like costs that cancel each other out.

Zero-cost trading strategies additionally include simultaneously purchasing and selling an asset with like costs that cancel each other out.

In investing, a zero-cost portfolio might see an investor build a strategy in light of going long in stocks that are expected to go up in value and short stocks that are expected to fall in value — a long/short strategy. For instance, an investor might decide to borrow $1 worth of Google stock and sell the $1 stake in Google, then, at that point, reinvest that money into Twitter. Following a year, assuming the trade has gone true to form, the investor sells Twitter to buy back and return the stock of Google they borrowed. The return on this zero-cost strategy is the return on Twitter minus the return on Google. One important point to note is that this scenario disregards margin requirements.

Instances of Zero-Cost Strategy

A company that tries to increase its productivity while likewise decreasing costs might choose to buy another network server to supplant several more seasoned ones. In view of advances in technology, the more established servers are exchanged and the sum earned from the sale pays for the new server, which is more efficient, works quicker, and reduces costs proceeding due to bring down maintenance and energy costs.

A functional application of a zero-cost business strategy for an individual might be to further develop sales possibilities for a home by cleaning up every one of the rooms, pressing excess belongings into boxes, and moving the crates to the garage. Since the labor is free, no cost is incurred.

Zero-Cost Strategies in Options Trading

One illustration 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 — the price at which the contract can be bought or sold — is picked so that the premiums from the purchase and sale successfully cancel each other out. Zero-cost strategies assist with diminishing risk by killing upfront costs.

One more illustration of a zero-cost strategy in options trading includes setting up several options trades simultaneously for which the premiums from the net credit trades offset the net debit trade premiums. With such a strategy, profits are determined by the performance of the assets as opposed to transaction costs.

Features

• A zero-cost portfolio might see an investor build a strategy in view of going long in stocks expected to go up in value and short stocks expected to fall in value — a long/short strategy.
• A zero-cost strategy is a trading or business decision that involves no extra expense to execute.
• Zero-cost trading strategies can be utilized with different assets and investment types including equities, commodities, and options.