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training_data/curated/text/37b7005da2fb192d60c17ea35c75a4bd88c165558a4ec3cd90e458c06ed9403d.txt

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+the greater the effect of interest. Rho measures an option’s sensitivity to the
+end results of these three influences.
+To understand how changes in interest affect option prices, consider a
+typical at-the-money (ATM) conversion on a non-dividend-paying stock.
+Short 1 May 50 call at 1.92
+Long 1 May 50 put at 1.63
+Long 100 shares at $50
+With 43 days until expiration at a 5 percent interest rate, the interest on
+the 50 strike will be about $0.29. Put-call parity ensures that this $0.29
+shows up in option prices. After rearranging the equation, we get
+In this example, both options are exactly ATM. There is no intrinsic value.
+Therefore, the difference between the extrinsic values of the call and the put
+must equal interest. If one option were in-the-money (ITM), the intrinsic
+value on the left side of the equation would be offset by the Stock − Strike
+on the right side. Still, it would be the difference in the time value of the
+call and put that equals the interest variable.
+This is shown by the fact that the synthetic stock portion of the
+conversion is short at $50.29 (call − put + strike). This is $0.29 above the
+stock price. The synthetic stock equals the Stock + Interest, or
+Certainly, if the interest rate were higher, the interest on the synthetic
+stock would be a higher number. At a 6 percent interest rate, the effective
+short price of the synthetic stock would be about $50.35. The call would be
+valued at about 1.95, and the put would be 1.60—a net of $0.35.
+A one-percentage-point rise in the interest rate causes the synthetic stock
+position to be revalued by $0.06—a $0.03 gain in the call value and a $0.03
+decline in the put. Therefore, by definition, the call has a +0.03 rho and the
+put has a −0.03 rho.