What is Rho?
Though at this point in time Rho has been rendered somewhat moot, it is important to understand a couple of things with regards to options pricing.
- A rise in interest rates causes puts to become cheaper due to the increased cost of carry on stocks.
- Speculators would rather face premium decay as opposed to paying the cost of carry.
- The at-the-money options in the furthest out months are the most affected by the changes in interest rates.
To read more about Rho, check out these stories:?
Options Playbook 13: Finishing the Greeks – Vega and Rho
Option Block 63: Rho – The Forgotten Greek
Options Bootcamp 34: A Very Special Episode