Why do different strike prices have different IV?

The main reason for this skew is that the market prices in the possibility of a large price decline in the market, even if it is a remote possibility. This might not be otherwise priced into the options further out of the money.

How does Rho affect option pricing?

Rho measures the expected change in an option’s price for a 1 percent change in a U.S. Treasury bill’s risk-free rate. Rho is larger for options that are in-the-money and decreases steadily as the option changes to become out-of-the-money. Also, rho increases as the time to expiration increases.

What does Rho mean for options?

Rho. Rho measures the expected change in an option’s price per one-percentage-point change in interest rates. It tells you how much the price of an option should rise or fall if the risk-free interest rate (U.S. Treasury-bills)* increases or decreases.

Why do options have different prices?

Time Value and Volatility High volatility increases the chance of a stock moving past the strike price, so options traders will demand a higher price for the options they are selling. This is why well-known events like earnings are often less profitable for option buyers than originally anticipated.

Why do options have different implied volatility?

Implied volatility is directly influenced by the supply and demand of the underlying options and by the market’s expectation of the share price’s direction. As expectations rise, or as the demand for an option increases, implied volatility will rise.

Why Rho is positive for call option?

Positive Rho Rho is positive for purchased calls as higher interest rates increase call premiums. Long calls give the right to purchase stock, normally the cost of that right is less than the fully exercisable value. The difference of those two numbers could be deposited into an interest bearing account.