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Rho

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Rho is the measure of an option's sensitivity to interest rate changes. Similar to Vega, interest rate changes impact longer-term options much more than near-term ones. Interest rates are used in pricing models to take into consideration an option's price based on its "hedged value", the idea that an investor uses long or short stock to hedge (or manage risk associated with) options positions. Conversely, Rho is negative for purchased puts as higher interest rates decrease premiums.

For example, interest rates are currently 3.00% and Rho on a $100 call option is +.45, if interest rates suddenly went to 4%, the premium would rise by $.45. Conversely, if Rho for the put was -.45, the put premium would decline by $.45 per share. Of course this assumes the other pricing factors remain constant. 

The higher the price of the stock and the longer time until expiration generally means a greater sensitivity to changes in interest rates (higher absolute Rho values). The cost of carrying a $250 stock position over time will be greater than that of a $50 stock. The longer the time frame the position is held, the greater the cost of money. 

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