Rho

Rho is one of the Greeks, the measures of option sensitivity. Higher interest rates generally increase the value of call options and decrease the value of put options, because the present value of the exercise price falls when rates rise.

For example, a call option with a rho of 0.40 would be expected to gain about 0.40 in value if interest rates rose by one percentage point, with everything else unchanged.

Rho is larger for options with longer times to expiry and for options that are in the money, since interest rates have more effect on cash flows further in the future.

For most short-term options, rho is small compared with the effects of the underlying price, volatility and time decay, so traders often pay it less attention. It becomes more important for long-dated options, such as long-term options on shares and options embedded in bonds, and during periods of large interest rate changes.