The Greeks
What is Rho (ρ)?
Measures option sensitivity to changes in interest rates.
📖 Complete Definition
Rho measures how much an option price changes with a 1% change in risk-free interest rates. While less impactful for short-term options, rho becomes significant for LEAPS and other long-dated options. Calls have positive rho (benefit from rising rates) while puts have negative rho. In high-rate environments, rho becomes more relevant.
📐 Formula
ρ = ∂V/∂r (partial derivative of option value with respect to interest rate)
💡 Examples
- →A 1-year call with 0.25 rho gains $0.25 for every 1% interest rate increase
- →Rho is more important for LEAPS than for weekly options
❓ Frequently Asked Questions
When does rho matter?
Rho is most significant for long-dated options (LEAPS) and during periods of significant interest rate changes. For weekly or monthly options, rho impact is minimal.
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