Rho

Rho measures how much an option's price changes when the risk-free interest rate changes by one percentage point. It is usually the least important Greek for short-dated trades, but it earns its place for completeness and for long-dated options.

Rho = change in option price / 1-point change in interest rates

Direction of the effect

• Calls have positive rho — higher rates lift call values.
• Puts have negative rho — higher rates lower put values.

The intuition: a call lets you control the underlying while keeping your cash, which can earn interest in the meantime; higher rates make that deferral more valuable. Puts work the opposite way.

A worked example

Own a long-dated call, rho 0.10.
Rates rise 1 percentage point:
  premium gains ~ 0.10 -> small but real

When rho actually matters

• Short-dated options: rho is tiny — ignore it in day-to-day trading.
• Long-dated options (LEAPS): rho grows with time to expiry and can become meaningful.
• Rate-sensitive environments: when central banks are moving aggressively, rho on longer options is worth a glance.

For most retail options trading, delta, gamma, theta and vega do the heavy lifting; rho is the one you check last but should not pretend does not exist.