I recently found out what rho is and how it relates to option prices and interest rates.
However, I am curious about its practical use. Do traders really use rho often, or is it mainly for complex strategies?
Traders often overlook rho because it is not relevant for short holding periods. It only gains importance when rates fluctuate rapidly or with high-priced stocks.
For day trades, focus on delta and gamma instead.
Rho typically matters for LEAPS or long-term strategies.
Rho applies mainly to long-term options. Its significance increases with higher interest rates. For short-term trades, it is less impactful.
Rho doesn’t impact binary options much due to same-day expiration.
Rho is not significant for short-term options due to their quick expiration. It becomes more relevant for longer positions or during critical rate announcements. Concentrate on delta, as it has a bigger impact on your trades and timing. Rho is useful mainly when holding positions for a longer duration and dealing with active rate changes, which is uncommon.
Honestly, I ignored rho my first two years and it killed me on longer plays.
Held calls for three months last year during rate hikes. Watched them bleed even when the stock went my direction.
Now I check rho on anything over a few weeks. Saved me from positions that looked solid but had hidden rate risk.