Rho option greek

Rho is an option Greek that measures the sensitivity of an option's price to changes in interest rates. It indicates how much the price of an option is sensitive to rise or fall when there is a 1% change in the risk-free interest rate.

Rho has the following properties:

• Call options generally have positive Rho, meaning their prices are expected to increase when interest rates rise.
• Put options typically have negative Rho, indicating that their prices are expected to decrease when interest rates rise.
• The impact of Rho on option prices, tends to be more significant for longer-dated options than short-dated, as the longer the time to expiration, the greater the potential impact of interest rate changes.

Using Rho in Options Trading:

• If you anticipate interest rates to rise, you may want to consider buying call options as they tend to benefit from higher interest rates.
• Conversely, if you expect interest rates to decline, buying put options may be advantageous as they typically benefit from lower interest rates.

Rho is more relevant for options that are deep in the money or far out of the money, as other Greeks mainly influence options that are close to the current market price. Rho is right at the bottom of the list of risks associated with options trading, as interest rates usually have very little effect on the price of options and are, therefore, largely ignored by traders.