Zero Premium, in crypto options trading, describes a derivative strategy structured such that the net cost of establishing the position is effectively zero at initiation. This implies that any premium paid for purchased options is precisely offset by premiums received from sold options within the same complex trade.
Mechanism
The operational logic for achieving a zero premium involves combining multiple options contracts, such as a long call and a short call with different strikes and/or expirations, or other synthetic constructions. The aggregate of the debits and credits from these individual components yields a net transaction cost of zero.
Methodology
Traders employ zero premium strategies to construct risk-defined positions without an initial capital outlay, serving various objectives like hedging existing cryptocurrency holdings or expressing a market view with minimal upfront investment. This approach enables market participants to manage exposure efficiently while optimizing capital deployment.
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