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Rho

How much an option’s price changes when interest rates move by one percentage point — usually the smallest of the Greeks.

Rho measures how much an option's price changes when interest rates move by one percentage point. Long calls have positive rho and long puts have negative rho, because higher rates make it slightly cheaper to hold the cash you'd otherwise need to buy the underlying, which nudges call premiums up and put premiums down.

In practice, rho is the Greek most traders think about least. On a short-dated equity option its effect is tiny compared with delta, theta or vega, so day-to-day it rarely moves the needle. Where it starts to matter is on LEAPS and other long-dated positions: a two-year call carries far more rho, so a shift in the rate environment can meaningfully change its value.

A quick example: a call with a rho of 0.05 gains about $5 per contract if rates rise by one point, all else equal. The common mistake is either obsessing over rho on weekly options where it's noise, or ignoring it entirely on long-dated trades where a changing rate backdrop quietly works for or against you.

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