What is Rho Option Greek?

Rho is the great that relates to your take on what painting and then I know interest rate but in the current low interest rate environment it does not get a lot of focus.the interest rate used for option pricing model is the risk-free rate which at the writing of this  article is at a very low level.

Rho does not get much attention and is not even currently taught in many courses due to the current low interest rate environment.the small impact of change in interest rate has on the value of an option which only one or two months to expiration allows some option educated and excuse to leave out rho so when discussing the greeks.the longer the time to expiration the more impact of change in interest rate may have on an options value.

The longest on call option in the example that the longer the expiration the more of an impact of change in interest rate will have on an options value. Is percentage point more Praise the value of the 450 days call option by .30.change in interest rate of this magnitude over the course of more than a year is more likely than in 60 days but the impact is still not terribly dramatic.

for put option A rise in interest rate will actually have a negative impact on the value of option.this relates to the time value of money and interest rate input into the option valuation and put call parity models.when interest rate rises the present value of the strike price actually is lowered. When the present value of the strike price is reduced this result in a higher call premium and lower put premium.another way to approach this is that with the higher interest rate the future value of a stock is expected to be higher than in a lower interest rate environment.if the future value of the stock is expected to be higher than the call option should be worth more and a put option should be worth less.

Interest rate impact

The impact of interest rate change on the put option in the magnitude of change is similar to put option as it is for the comparable call option. The 60 days put option lose .05for each one percent increase in interest rate and the 450 days put option lose .30 for its 1% increase in interest rate.

Conclusion

The impact of interest rate on option pricing is a function of the time to expiration for an option. It is of little concern with when considering short-term option but may be something to take into consideration when looking at LEAPS option that may go as far as to wear out for expansion.