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Rho


Meaning of Rho

Rho measures the change in Options price with unit change in rate of interest. If Rho of Put Options is -3.87 that signify that for each unit increase in interest rate, Put Option price will decrease by 3.87.

Important Points for Rho



RHO with respect to change in SPOT PRICE:



Observations: As spot price increases​

  • Call premium increases and Put premium decreases.
  • Call Delta increases and Put Delta decreases.
  • Gamma is at peak at ATM and decreases as UNDERLYING moves away.
  • Vega is at peak at ATM and decreases as UNDERLYING moves away.
  • Theta is at peak at ATM and decreases as UNDERLYING moves away.
  • Call Rho increases and Put Rho decreases.

RHO with respect to change in STRIKE PRICE:



Observations: As Strike price Increases​​

  • Call premium Decreases and Put Premium Increases.
  • Call Delta Decreases and Put Delta Increases.
  • Gamma is at peak at ATM and decreases as UNDERLYING moves away.
  • Vega is at peak at ATM and decreases as UNDERLYING moves away.
  • Theta is at peak at ATM and decreases as UNDERLYING moves away.
  • Call Rho decreases and Put Rho increases.

RHO with respect to change in DAYS TO EXPIRY:​​​​​​



Observations: As days to expiry decreases / time increases​​​​

RHO with respect to change in VOLATILITY:​​



Observations: As Volatility increases​​​

RHO with respect to change in RATE OF INTEREST:​​​



Observations : As Rate of Interest increases​​​

Summary of RHO Relationship with other variables:​​​







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