As an example of rho in options trading, let’s assume that interest rates have just increased from 2% to 3%. Now, let’s suppose that a long call option is comfortably in the money with a rho of just 0.02 and a price of £1.20. Given the 1% increase in interest rates, the value of this call option has gone from £1.20 to £1.22, which you’d get by adding the rho of 0.02 to the current market price of £1.20.
On the other hand, if you were dealing long put options and interest rates increased from 2% to 3%, the price of the put would likely decrease. This would be achieved by subtracting the rho value from the current option value after a 1% increase in interest rates. For example, if the rho of a put option was -0.15 and the current value of the put option was £2.00, you would assume that given a 1% increase in interest rates, the value of the put option would fall to £1.85.