Answer: Combining the purchase of the option with a sale of other options such that the net premium is zero and the combined payoff is identical to the payoff of the original option.

## Explanation Option C is correct because it describes creating a zero-cost collar strategy, which is a common method to transform a long option position into a zero-cost derivative: - **Zero-cost collar**: This involves buying a protective put and selling a covered call with the same expiration date, where the premium received from selling the call exactly offsets the premium paid for the put. - **Net premium zero**: The strategy achieves zero upfront cost while maintaining similar payoff characteristics to the original option position. - **Identical payoff**: The combined position replicates the risk profile of the original option while eliminating the initial cash outlay. **Why other options are incorrect:** - **Option A**: Simply deferring payment doesn't eliminate the cost - it just changes the timing. The present value of the deferred payment equals the upfront premium. - **Option B**: This describes a forward-starting option, which still has a cost equal to the present value of the future payment. - **Option D**: Selling the underlying stock creates a different risk profile (covered position) that doesn't replicate the original option's payoff characteristics. This zero-cost transformation is particularly useful for hedge funds seeking to reduce upfront capital requirements while maintaining desired option exposures.

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