What does an option's "Rho" indicate?

An option's "Rho" is an important Greek that measures the sensitivity of the option's price to changes in interest rates. Specifically, Rho reflects the expected change in the option's price for a 1% change in interest rates. This is particularly relevant for long-dated options where interest rate changes can have a more significant impact on the present value of the expected payoff. Understanding Rho is crucial for traders and investors as it helps them to assess how fluctuations in interest rates might affect their option positions and overall strategy.

While other concepts such as volatility and time to expiration are also important in options trading, they are represented by different Greeks (e.g., Vega for volatility and Theta for time decay), making Rho distinct in its focus on interest rate sensitivity.