Delivery Month
What Is a Delivery Month?
The term delivery month alludes to a key characteristic of a futures contract that assigns when the contract lapses, and when the underlying asset must be delivered or settled. The exchange on which the futures contract is traded likewise lays out a delivery location and the date inside the delivery month when the delivery can occur.
Not all futures contracts require physical delivery of a commodity, and many are rather settled in cash. The delivery month of a derivative may likewise be called the contract month.
Grasping Delivery Months
Futures contracts are agreements between two gatherings to buy or sell an asset like a commodity or currency at a predetermined date from here on out. The buyer consents to buy the underlying asset upon expiration, while the seller consents to surrender it by then. Some commodities can be delivered at whatever month, while others must be delivered in certain months. The delivery month is just the month stipulated in a futures contract for cash settlement or for physical delivery. Commodities are any great for which there is a demand. This incorporates anything from stocks and bonds to precious metals, oil, corn, sugar, and soybeans.
If a futures trader has any desire to offset or liquidate a position, the delivery months must match. Most futures positions are energized prior to the delivery month, so the contracts that are close to delivery frequently see the most volume and set the current price of the underlying commodity. On the off chance that they don't match, the trader winds up long one month and short an alternate month as opposed to counteracting the position.
For example, cocoa will just have delivery months happening in March, May, July, September, or December. This means on the off chance that you don't exit your position before the month's over before the contract's expiration, you must take physical delivery of the cocoa — or the commodity being referred to. Certain commodities, as verified above, can be delivered all year.
Traders must exit their position before the month's over before the expiration or take a physical delivery of the commodity.
Demonstrating the Delivery Month
Delivery months are addressed by a single, specific letter in the contract, and are portrayed in order starting with January ("F") and ending with December ("Z").
Since futures contracts are traded on exchanges, the exchange will display the delivery date. This is the last date by which the futures contract for a commodity must be delivered. The delivery date is indicated by a letter on the ticker. In spite of the fact that letters are precluded, the coding system runs in sequential order with "Z," for instance, comparing with December:
- January: F
- February: G
- Walk: H
- April: J
- May: K
- June: M
- July: N
- Regal: Q
- September: U
- October: V
- November: X
- December: Z
The complete ticker symbol for a futures contract will depict the commodity as a two-character code, the delivery month as a single letter and the year as a two-digit number. CCZ18, for example, shows a cocoa contract for delivery in December 2018.
There are contrasting speculations on the why of the numbers assigned to various delivery months. While the month letter codes are just a practice, the overarching assessment is that letters that address activities like bid (B) and ask (A) were taken out as well as letters handily confounded when spoken like C, D, and E. Include the removal of I and L, which can be effortlessly mixed up when written, and you are pretty much at the current rundown. The true story doesn't exactly make any difference as long as traders and brokers in the pit understand what delivery month they are referring to.
Features
- Delivery months are addressed by a single, specific letter in the contract symbol, and delivery dates are displayed by exchanges.
- The delivery month indicates when a derivatives contract terminates, and when the underlying asset must be delivered or settled.
- Traders must exit their position as close to the delivery month as could be expected; any other way, they must take or make delivery of the underlying asset.
