In options trading, traders are often presented with Greek letters that represent mathematical measures of the sensitivity of the option price to different variables, which are products of the option pricing model, and through these measures, option traders can more accurately assess the risk exposure of the option and construct the appropriate risk management as well as trading strategies.
The Greek letters commonly used in options trading are as follows: Delta (Δ), Gamma (Γ), Theta (Θ), Vega (ν), Rho (ρ). The connotations of Rho (ρ) are described below.
Option P&L = Delta P&L + Gamma P&L + Vega P&L + Theta P&L + other small factors P&L.
Rho (ρ)
Definition:Rho is the partial derivative of the option price with respect to the risk-free rate.
Meaning: The Rho value measures the sensitivity of the option price to changes in the risk-free rate.
Application: In actual trading, compared with other factors that will affect the option price, the sensitivity of the option price to changes in the risk-free rate is relatively small, and option traders usually ignore the impact of changes in the risk-free rate on the option price.
