Rho

Definition

Rho in plain English

Rho answers one narrow question: if interest rates nudge up or down, how much does this option's value move? It matters because an option involves paying or receiving money at a future date, and the going interest rate changes what that future money is worth today. For most short-dated options rho is small and traders barely think about it, but for long-lived contracts a shift in rates can matter a lot. Picture it as the option's sensitivity dial for the 'cost of waiting' — turn the interest-rate knob, and rho tells you how far the price needle swings.

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