What rho means in plain words
Rho is one of the option Greeks. It estimates how much an option's price changes when the risk-free interest rate goes up or down by one percentage point (1%), if everything else stays the same.
Interest rates matter to options because buying a call instead of the shares lets you keep your cash, and that cash can earn interest. Higher rates make that saving worth more.
Positive for calls, negative for puts
Calls have a positive rho: when rates rise, calls become a little more valuable. Puts have a negative rho: when rates rise, puts become a little less valuable.
For example, if a call has a rho of 0.08, then a 1 percentage point rise in rates would raise its price by about $0.08 per share, or about $8 per contract of 100 shares, all else equal. This is a made-up example, not a quote.
Why rho is usually the smallest Greek
For short-dated options there is little time for interest to add up, so rho is tiny. Interest rates also change slowly, so day to day, delta, theta and vega move an option's price far more.
Rho matters more for long-dated options such as LEAPS, which last a year or more, and when interest rates are moving a lot. That is when it is worth a look.
Rho FAQ
What is rho in options?
Rho estimates how much an option's price changes for a 1 percentage point change in the risk-free interest rate, with everything else unchanged.
Is rho positive or negative?
It depends on the option. Calls have a positive rho and puts have a negative rho.
Why does rho matter less for short-term options?
Interest has little time to add up over days or weeks, so a rate change barely moves the price. Over a year or more the effect becomes larger.
Do beginners need to worry about rho?
Usually not at first. Most beginners get more from learning delta, theta and vega. Rho is worth learning once you trade long-dated options.
How is rho different from vega?
Rho measures sensitivity to interest rates. Vega measures sensitivity to implied volatility. They are separate risks.
Related terms
Educational content only, not financial advice.