Rho (Options)

Rho measures the expected change in an option's price for a 1 percentage point change in the risk-free interest rate. Call options have positive rho (they increase in value when rates rise) because higher rates increase the forward price of the underlying and reduce the present value of the strike price. Put options have negative rho (they decrease when rates rise) for the opposite reason. Rho is generally the least significant Greek for short-term options because interest rate changes are typically small and gradual. However, rho becomes more important for LEAPS and other long-dated options, where the cumulative effect of interest rates is larger. During periods of rapid rate changes (like the 2022-2023 Federal Reserve hiking cycle), rho can meaningfully impact option prices, especially for deep ITM long-dated options.