Rho

  

Categories: Derivatives

Every family has a wallflower. The one who, at the family reunion, spends most of the day hiding out in the basement. For the Greeks, from the collection of concepts related to option trading (each one named for a Greek letter)...that wallflower is Rho.

Delta and gamma are the attractive go-getters who just got into Yale. Theta and vega are the artsy types whose bands have a single that just got featured on Grey's Anatomy. And then there's Rho. Poor, ignored Rho. Known only to deep-cut, option-trading nerds.

Rho measures the change in an option's price, compared to changes in a risk-free interest rate. It tracks how sensitive an option is to changes in interest rates. A Rho of 1.0 means that, if rates climb by one percentage point, the price of that option will increase one percent as well. Purchased calls have a positive Rho, while purchased puts have a negative Rho.

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Finance: What is the Arms Short Term Tra...13 Views

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finance a la shmoop what is the Arms Short Term Trading Index not to be

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confused with the short arms term trading index a run by this guy all [Man with dinosaur for a head sitting at a desk]

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right Richard Arms invented it in the 70s and then a journalist cleverly

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renamed it Trin.... short for trading index very clever

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yeah well Trin as in Rin Tin is just an index for the advanced decline ratio in

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the stock market and if you haven't seen our video on it oh well you should we've

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had George Clooney of fortune so directed the computation of the Trin [George Clooney directing a show]

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looks like this Trin equals advanced issues divided by declining issues all

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over advanced volume divided by declining volume....

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So note that this equation maps volume as an element of the computation so it's

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meaningfully more useful than just the vanilla advanced decline ratio and hey [Man discussing equation]

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just keeping it real their advanced decline ratio we love you but you're [Advanced decline ratio laying on sofa eating doughnuts]

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just not as good all right well so if we compute things we get a value of 1 and

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well that's good or rather a bullish sign that the market "wants to go

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up" above one is bearish and at premiums of 30 40 50 percent ie [Bear walking by a river]

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calculations of 0.5 very bullish to 1.5 very bearish well those are signs that

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have been validated by actual market performance over time well why would we

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care about this calculation in the first place, well if we get the answer right as [Man staring at a crystal ball]

01:36

to where the markets going well you know we can make a fortune

01:39

yeah ask Warren Buffett... [Warren eating dinner]

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