Reading 19 Currency Management
(How to decrease the cost of a currency hedge…) Section 6.3.2. Protective Put Using OTM Options
The curriculum says:
“fully hedging a currency position with a protective put strategy using an ATM option is the most expensive means of all to buy convexity.”
I understand why OTM option would be cheaper, but wouldn’t an ITM option be more expensive than an ATM option since it has greater intrinsic value? Why is ATM the most expensive way to “put convexity into the hedge’s payoff”. Is it because ITM means the payoff has already got convexity?