Options & Derivatives

Rho

The sensitivity of an option's value to a change in interest rates.

Positive for calls, negative for puts - a higher rate reduces the present value of the strike you will pay, which helps a call and hurts a put.

Usually the least important Greek for short-dated equity options, where a rate change moves the price far less than a move in spot or volatility.

When it matters: long-dated options, where discounting over years is material; rates products, obviously; and any period of large rate moves, when the assumption that rho is negligible quietly stops holding.

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