14 lines
956 B
Plaintext
14 lines
956 B
Plaintext
Rho
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For all intents and purposes, rho is of no concern to Kim. In recent years,
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interest rate changes have not been a major issue for option traders. In the
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Alan Greenspan years of Federal Reserve leadership, changes in the interest
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rate were usually announced at the regularly scheduled Federal Open
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Market Committee (FOMC) meetings, with but a few exceptions. Ben
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Bernanke, likewise, changed interest rates fairly predictably, when he made
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any rate changes at all. In these more stable periods, if there is no FOMC
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meeting scheduled during the life of the call, it’s unlikely that rates will
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change. Even if they do, the rho with 44 days to expiration is only 0.023.
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This means that if rates change by a whole percentage point—which is four
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times the most common incremental change—the call value will change by
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a little more than $0.02. In this case, this is an acceptable risk. With 23 days
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to expiration, the ATM 35 call has a rho of only 0.011. |