An option trading which is arranged such that the premium received from an option sold (short option) compensates for the premium paid for an option purchased (long option). However, constructing a zero-premium trade depends on the ability to price the option correctly so that its premium would exactly equal the expected cash flow. After all, this strategy is not entirely costless because it can offset the option’s premium, but not the transaction costs that an investor would incur.
The zero-cost hedge is also known as a zero-cost option.
