Rho Of Options

Rho is a measure of the sensitivity of the option price relative to changes in the risk free interest rate. A higher interest rate will be cause the option premium of the option to increase if the rho is positive. If a higher interest rate causes the option premium to decrease, the rho is said to be negative.

The table below illustrates the difference between a call’s rho and a put’s rho.

Type of option Rho Interpretation
Call Positive The rho of a call option is always positive. Higher interest rates will increase the call’s value.
Put Negative The rho of a put option is always negative. Higher interest rates will decrease the put’s value.