Nearby Month

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DEFINITION of 'Nearby Month'

In the context of options and futures, the month closest to delivery (futures) or expiration (options). "Nearby month" is sometimes referred to as "nearest month," "front month" or "spot month." A contract for the nearby month is the shortest contract that an investor can purchase. Trading is usually most active for the nearby month as compared to deferred months.



BREAKING DOWN 'Nearby Month'

In a normal futures market that is in contango, nearby months are less expensive than deferred months. In backwardation, futures market conditions are such that the nearby month is more expensive than deferred months. The nearby month is a key component of many options and futures trading strategies, including the calendar spread and reverse calendar spread. These strategies seek to profit from differences in pricing between the nearby month and a more distant month for the same underlying market.



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RELATED FAQS
  1. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  2. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  3. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
  4. What does a futures contract cost?

    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
  5. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>
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    The utilities sector exhibits a high degree of stability compared to the broader market. This makes it best-suited for buy-and-hold ... Read Full Answer >>

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