Delivery Month Definition in Futures Contracts Plus Codes

What Is a Delivery Month?

The term delivery month refers to a key characteristic of a futures contract that designates when the contract expires, and when the underlying asset must be delivered or settled. The exchange on which the futures contract is traded also establishes a delivery location and the date within the delivery month when the delivery can take place.

Not all futures contracts require physical delivery of a commodity, and many are instead settled in cash. The delivery month of a derivative may also be called the contract month.

Understanding Delivery Months

Futures contracts are agreements between two parties 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 expiration, while the seller agrees to relinquish it at that point. Some commodities can be delivered in any month, while others can only be delivered in certain months. The delivery month is simply the month stipulated in a futures contract for cash settlement or for physical delivery. Commodities are any good for which there is a demand. This includes anything from stocks and bonds to precious metals, oil, corn, sugar, and soybeans.

If a futures trader wants to offset or liquidate a position, the delivery months must match. Most futures positions are excited prior to the delivery month, so the contracts that are close to delivery often 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 short a different month instead of canceling out the position.

For instance, cocoa will only have delivery months occurring 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 expiration, you must take physical delivery of the cocoa—or the commodity in question. Certain commodities, as noted above, can be delivered year-round.

Indicating the Delivery Month

Delivery months are represented by a single, specific letter in the contract, and are depicted alphabetically 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 final date by which the futures contract for a commodity must be delivered. The delivery date is indicated by a letter on the ticker. Although letters are omitted, the coding system runs in alphabetical order with "Z," for example, corresponding with December:

• January: F
• February: G
• March: 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 contract 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 instance, 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 letter codes are simply a tradition, the prevailing opinion is that letters that represent actions like bid (B) and ask (A) were removed 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 written, 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 know what delivery month they are talking about.