What is Vega & Rho in options?
There are 5 Common Greek Letter Indicators for Options:
This post will explain vega & rho in options.
Vega reflects the effect of volatility on changes in option prices. For every 1% change in volatility, the option price changes by approximately 1 vega.
Rho reflects the impact of the risk-free interest rate on changes in option prices. For every 1% change in the risk-free rate, the option price changes by 1 approximately rho.
When introducing the implied volatility, it was mentioned that the implied volatility has a great influence on the option price, and the impact of the implied volatility on the option price can be quantified through vega.
Rho is used to measure the impact of the risk-free interest rate on changes in futures prices. Usually, the risk-free interest rate fluctuates less because it has less impact on option prices.
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