🏦 Stock Option Rho

Definition

Rho (ρ) measures how much an option’s price is expected to change in response to a 1% change in interest rates.
It reflects the sensitivity of the option’s value to shifts in the risk-free rate, such as U.S. Treasury yields.

Why It Matters

• Interest Rate Exposure: Rho helps traders understand how monetary policy might affect option pricing.
• Long-Term Relevance: Rho is more impactful for longer-dated options than short-term ones.
• Strategic Planning: In rising rate environments, call options gain value while puts lose value (and vice versa).

Example

Suppose you own a long-term call option with a rho of +0.10.
If interest rates rise by 1%, the option’s price is expected to increase by $0.10, all else being equal.

Key Insights