Brian Lee
Aug 12, 2025
Part of: Option
Greeks
Option rho measures how sensitive an option’s price is to changes in interest rates. It approximates how much the premium will move for a one percentage point shift in the risk-free rate. Calls usually have positive rho while puts are negative, reflecting how higher rates benefit call holders and hurt put holders. Mathematically, rho is the partial derivative of the option price (V) with respect to the interest rate (r):
\[ \rho = \frac{\partial V}{\partial r} \]
Rho tends to matter most for contracts with long times to expiration, since short dated options have little exposure to rate moves. Tracking rho alongside the Risk-free Rate can help assess whether an option’s price properly reflects prevailing interest-rate expectations.