Because of the way PayPal accepts payments, you are not able to list a free product through JVZoo. Paypal requires there be a charge to run a transaction through them, however, you can have a free product be part of your own sales funnel, along with an opt-in form. By using the squeeze page option you can give away a freebie for upon signing up which leads to the sales page of the OTO. It just cannot be listed as its own product.
You will want to set up the OTO in JVZoo as a regular product, with the sales funnel URL put into the space marked "Landing Page / Sales Funnel / Squeeze Page / Prelaunch" and ensure that "Send all traffic to Sales Page after launch date/time" is marked to No.