I am confused about the term in-the-money when I am acting as Seller. For a CALL option: When the current market price of stock is greater than strike price, it's a considered as In-The-Money for a Buyer. For Seller, is above example an In-The-Money or Out-of-the-money?
The Intrinsic Value of an option refers to how much in-the-money the option is.
For a call, it's the Current Price of the underlying less the Strike Price
For a put, it's the Strike Price less the Current Price of the underlying For options that are out-of-the-money or at the money, the Intrinsic Value is zero.
The Time Value of an option is the Option Premium less the Intrinsic Value (if any). For options that are at-the-money (ATM) or out-of-the-money (OTM), the premium will be equal to the Time Value.
It makes no difference whether you are the buyer or the seller.
In-the-money means the same whether you're the buyer (you have a long position) or the seller (you have a short position). The buyer wants the option to be in the money when it expires; the seller wants the option to be out of the money when it expires.
For a call option, "in the money" means that the price of the stock is greater than the strike price. For a put option, "in the money" means that the price of the stock is less than the strike price.
ITM is the same case for Buyers and Sellers.
See the image I attached for SPY today.
Left side are CALLS.
Right side PUTS.
The area that's shaded is ITM.
not Shaded is OTM.
Let's assume you Sold initially when it was OTM,
and then it went ITM.
You can (if you want) to sell the same position again when it's gone ITM.
Your entry price will just be the average between the two...
Note, the market price for it is ITM.
Example, you sold initially for $1.00, OTM
price changed, and it's now ITM for $3.00. You'll be down 3x what you sold..
If you sold again at $3.00,
your new average would be $1.50, with a market price of $3.00.
Hope that makes sense. I wouldn't encourage averaging down though.