Definition
Rho is an options Greek that measures sensitivity to changes in risk-free interest rates. Call options have positive rho (benefit from rate increases), while puts have negative rho. Rho is generally less significant than other Greeks except for long-dated options.
Formula
Example
A LEAP call with 0.25 rho would gain $25 per contract if interest rates rise from 5% to 6%.
FAQ
What is Rho (Options Greek)?
Measures how much an option price changes for a 1% change in interest rates.
How do you calculate Rho (Options Greek)?
A common formula for Rho (Options Greek) is: Rho = Change in Option Price / 1% Change in Interest Rate
Why is Rho (Options Greek) important?
Rho (Options Greek) helps investors evaluate options and make more informed decisions.
Related Terms
Delta (Options Greek)
Measures how much an option price changes for a $1 move in the underlying.
Theta (Options Greek)
Measures how much an option loses value each day due to time decay.
Vega (Options Greek)
Measures how much an option price changes for a 1% change in implied volatility.
Interest Rates
The cost of borrowing money or the return for lending money, typically expressed as a percentage.