You hold a portfolio of a long position in a call and a long position in a put, both for the same strike and maturity. Which of the following statements is true?
A) When the stock price increases, the rho of the portfolio increases if and only if the call is in-the-money.
B) When the stock price increases, the rho of the portfolio decreases if and only if the call is out-of-the-money.
C) When the stock price increases, the rho of the portfolio increases whether or not the call is in-the-money.
D) When the stock price increases, the rho of the portfolio may increase, decrease or stay constant depending on volatility and depth-in-the-money.

Question

Quizplus · Accepted Answer

The rho of a call option increases with an increase in stock price, regardless of whether the call is in-the-money or out-of-the-money. The rho of a put option decreases with an increase in stock price. Therefore, the overall rho of the portfolio increases when the stock price increases.

You Hold a Portfolio of a Long Position in a Call