Per CFAII material:
“The rho of a call is positive. Intuitively, buying an option avoids the financing costs
involved with purchasing the stock. In other words, purchasing a call option allows an
investor to earn interest on the money that otherwise would have gone to purchasing
the stock. The higher the interest rate, the higher the call value.”
The above makes intuitive sense. But my question is:
Since the value of the call option is positively related to the value of the underlying, won’t the value of the underlying decrease if interest rates increase? And if so, won’t the value of the Call option therefore actualy decrease rather than increase?
Please clarify this for me as i am confused