What Is Rho?
Rho measures how much an option's price changes when risk-free interest rates move up or down by one percentage point. Long calls and short puts have positive rho (gain from rising rates); long puts and short calls have negative rho.
For short-dated options, rho is almost always negligible. It becomes meaningful only on long-dated options (LEAPS) where the cost of carrying a stock position factors into pricing. Most retail options traders rarely think about rho explicitly.
Rho mattered more during the 2022-2024 rate-hike cycle, when rapid rate moves shifted LEAP prices noticeably. In a stable-rate environment, rho is the least relevant Greek. The order of practical importance is delta > gamma > theta > vega > rho.
Related terms
- Delta — Sensitivity of an option's price to a $1 change in the underlying.
- Gamma — Rate of change of delta — measures how fast directional exposure shifts.
- Theta — Time decay — how much an option loses in value per day as expiration approaches.
- Vega — Sensitivity of an option's price to a 1-point change in implied volatility.