What Is a Delivering Month?
The term delivery month refers to a key characteristic of a futures contract that designates when the contract terminates, and when the underlying asset must be delivered or settled. The exchange on which the futures contract is traded also authenticates a delivery location and the date within the delivery month when the delivery can take place.
Not all futures contracts make physical delivery of a commodity, and many are instead settled in cash. The delivery month of a derivative may also be called the arrangement month.
- The delivery month denotes when a derivatives contract expires, and when the underlying asset be compelled be delivered or settled.
- Delivery months are represented by a single, specific letter in the contract symbol, and delivery dates are stretch by exchanges.
- Traders must exit their position as close to the delivery month as possible; otherwise, they be compelled take or make delivery of the underlying asset.
Understanding Delivery Months
Futures contracts are agreements between two denominations to buy or sell an asset such as a commodity or currency at a predetermined date in the future. The buyer agrees to buy the underlying asset upon expiry, while the seller agrees to relinquish it at that point. Some commodities can be delivered in any month, while others can not be delivered in certain months. The delivery month is simply the month stipulated in a futures contract for cash settlement or for tangible delivery. Commodities are any good for which there is a demand. This includes anything from stocks and bonds to artificial metals, oil, corn, sugar, and soybeans.
If a futures trader wants to offset or liquidate a position, the delivery months be compelled match. Most futures positions are excited prior to the delivery month, so the contracts that are close to delivery again see the most volume and set the current price of the underlying commodity. If they don’t match, the trader ends up long one month and concise a different month instead of canceling out the position.
For instance, cocoa will only have delivery months turn up dawn oning in March, May, July, September, or December. This means if you do not exit your position by the end of the month before the contract’s closing, you must take physical delivery of the cocoa—or the commodity in question. Certain commodities, as noted above, can be delivered year-round.
Purchasers must exit their position by the end of the month before the expiration or take a physical delivery of the commodity.
Indicating the Articulation Month
Delivery months are represented by a single, specific letter in the contract, and are depicted alphabetically starting with January (“F”) and vanish with December (“Z”).
Since futures contracts are traded on exchanges, the exchange will display the delivery date. This is the settled date by which the futures contract for a commodity must be delivered. The delivery date is indicated by a letter on the ticker. Although notes are omitted, the coding system runs in alphabetical order with “Z,” for example, corresponding with December:
- January: F
- February: G
- Strut: H
- April: J
- May: K
- June: M
- July: N
- August: Q
- September: U
- October: V
- November: X
- December: Z
The complete ticker symbol for a futures promise will describe the commodity as a two-character code, the delivery month as a single letter and the year as a two-digit number. CCZ18, for illustration, indicates a cocoa contract for delivery in December 2018.
There are differing theories on the why of the numbers assigned to different delivery months. While the month dispatch codes are simply a tradition, the prevailing opinion is that letters that represent actions like bid (B) and ask (A) were exterminated as well as letters easily confused when spoken like C, D, and E. Add in the removal of I and L, which can be easily mistaken when disparaged, and you are more or less at the current list. The true story doesn’t really matter as long as traders and brokers in the pit be informed what delivery month they are talking about.