Hi this is Michael Gross, Co-author of McGraw Hills “The Complete Guide to Option Selling” and Director of research here at optionsellers.com. I'm here with your bi-monthly option seller video lesson. The topic of this week's lesson is The Margin Cushion.

You know I talked to a lot of prospective investors here at our firm and one of the top questions I get is:

• How are you going to protect my money?

• How are you going to protect me from downside risk? There is a lot of risk in option selling

• How do I avoid that?

• How do I stay away from losing money?

And there's a couple answers to that question but one of the primary answers is option selling is no different than any other investment, in that you can lose money in it; look we're all adults here you're going to have losing traits. Option Selling is not perfect; we think it's a superior strategy but it's not perfect and if you're going to be an option seller you're going to have to accept the fact that sometimes trades are going to lose money, sometimes your account's going to lose money. The key is when you do lose money you lose it the right way, you lose it in a limited way, you lose it in a controlled way that enables you or puts you in a position to be able to bounce back next week, recoup the losses next month or even in some cases next year, but you want to keep that in a controlled capacity, keep you in the game and puts you in a position to make the money back in the future time and how we do that is with systems.

Risk management systems all the way along, that's what separates an amateur from a professional or sophisticated investor is those systems. One of the systems we're going to talk about today is the margin cushion and this is a very crucial risk management system; if you want to be a successful option seller you need to understand the concept, that's why we're going to talk about it today.

Before I go any further, if you'd like to learn more about concepts like this, about risk management systems or option selling in general - how to be successful, you'll learn a whole plan for how to be a successful option seller in the complete guide to option selling. It is on sale now at our website www.optionsellers.com/book you could get it...if you buy it through our website you get a 40% discount off the cover price where you get it at Amazon or anywhere else. So what is the margin cushion? Well before we talk about what a margin cushion we're going to talk about why you need it.

As an option seller you have two types of risk; there are two types of primary risk that you're going to have to deal with in the market:

The first one is that your option goes in the money.

Now this is something that Stock Option sellers deal with a lot and in some cases it's what they want, if they sell or put underneath the market and price of the stock goes down and they get that stock put to them sometimes that's what they want because of trying to buy the stock at a cheaper level. Same thing if we are selling a call above the market, the market goes up, it takes them out of the profit so that it's not all bad thing if you're a stock option seller. For commodity option seller who are just selling for premium, you don't want the option going in the money because when an option goes in the money it's value starts increasing rapidly, we want to avoid that, fortunately if you're using the method we subscribe to and we prescribed in our book and our other materials, the FUDOM method that's not a concern. Why because your selling option so far out of the money that... the chances of them going in the money are remote at best, not only that but you can see them approaching that strike place so there's plenty of time to get out of the option in almost every case, long before it ever goes in the money.

So that's not a big concern if you're selling commodity options using the FUDOM method. Your primary concern is the second form of risk we are goin(continued)