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training_data/curated/text/855b864410078ecad672ab7692ae687d8c07c5f10098d94920e7c5fac2d8c25d.txt

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+the LEAPS 60 call delta is about 0.77. This disparity continues as XYZ
+moves higher.
+Perhaps Susanne had implied volatility (IV) on her mind as well as time
+decay. These long-term ATM LEAPS options have vegas more than three
+times the corresponding May’s. If IV for both the May and the LEAPS is at
+a yearly low, LEAPS might be a better buy. A one- or two-point rise in
+volatility if IV reverts to its normal level will benefit the LEAPS call much
+more than the May.
+Theta, delta, gamma, and vega are typical considerations with most
+trades. Because this option is long term, in addition to these typical
+considerations, Susanne needs to take a good hard look at rho. The LEAPS
+rho is significantly higher than that of its short-term counterpart. A one-
+percentage-point change in the interest rate will change Susanne’s P&(L) by
+$0.64—that’s about 8.5 percent of the value of her option—and she has
+nearly two years of exposure to interest rate fluctuations. Certainly, when
+the Federal Reserve Board has great concerns about growth or inflation,
+rates can rise or fall by more than one percentage point in one year’s time.
+It is important to understand that, like the other greeks, rho is a snapshot
+at a particular price, volatility level, interest rate, and moment in time. If
+interest rates were to fall by one percentage point today, it would cause
+Susanne’s call to decline in value by $0.64. If that rate drop occurred over
+the life of the option, it would have a much smaller effect. Why? Rate
+changes closer to expiration have less of an effect on option values.
+Assume that on the trade date, when the LEAPS has 639 days until
+expiration, interest rates fall by 25 basis points. The effect will be a decline
+in the value of the call of 0.16—one-fourth of the 0.638 rho. If the next rate
+cut occurs six months later, the rho of the LEAPS will be smaller, because it
+will have less time until expiration. In this case, after six months, the rho
+will be only 0.46. Another 25-basis-point drop will hurt the call by $0.115.
+After another six months, the option will have a 0.26 rho. Another quarter-
+point cut costs Susanne only $0.065. Any subsequent rate cuts in ensuing
+months will have almost no effect on the now short-term option value.