Definition
Rho
Rho measures how much an option's premium changes when interest rates change by 1%.
Rho is the least-watched Greek for retail traders because Indian rate moves are infrequent and small relative to other forces. Higher interest rates slightly increase call premiums and decrease put premiums, since the cost of carrying the underlying changes.
For short-dated NSE weekly options, rho is almost negligible — theta and vega dominate. It matters more for long-dated monthly or far-out positions, and for arbitrage desks pricing the cost of carry between futures and options.
Related terms
- VegaVega measures how much an option's premium changes when implied volatility rises or falls by 1%.
- Cost of CarryCost of carry is the net cost of holding an asset to a future date, comprising financing cost less any income, and it determines the fair-value difference between a futures price and the underlying spot price.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.