What Is the Spot Delivery Month?

The spot delivery month is the nearest month when any futures contract for a given commodity may mature. It is the earliest possible month a futures contract may become deliverable and is dependent on what commodity the contract covers.

The spot delivery month is also known as the nearby month or front month.

Understanding Spot Delivery Month

​​​​​​​The spot delivery month is the scheduled month of delivery on a commodity futures contract. A futures contract for a given commodity may only mature, or become deliverable, in certain months of the year. These months are known as the delivery months

For example, the delivery months for orange juice futures contracts are February, March, May, July, September, and November. Whereas, futures contracts for heating oil can be written to expire in any month of the year. When a contract writes, the very next delivery month is the spot delivery month for that commodity.

Using the O.J. example above, if the current month is August, the spot delivery month for the orange juice futures is September. For our heating oil example, if the contract's expiration date has not yet passed on a November heating oil futures, then the spot delivery month for the product is December, which is the next month. However, if the delivery date has passed, the spot delivery month for heating oil will push out to the next full month, or January.

Spot Delivery Month Impact on the Commodity Price and Positions

The trading activity of spot delivery month contracts determines the spot price, which is the current market value of the underlying commodity. The highest volume of trading is generally in the spot delivery month. When investors check the spot price of gold, for example, what they are looking at is a number reflecting the value at which spot delivery month gold contracts are currently trading.

New traders interested in trading in the futures markets need to understand the fundamental of futures contracts. Hedgers and speculators use futures contracts. Hedgers try to lock in a good price on a commodity they will need later in the year, while speculators try to turn a profit by playing a rising or falling price of the product. When a trader buys futures contracts, they are taking on the obligation to either receive or physically deliver a specified amount of the commodity in the delivery month for that contract.

As expiration nears, futures traders who do not actually want to receive or physically deliver the commodity begin to unload their positions by buying offsetting positions. They do this with spot delivery month contracts. If they do not exit the trade-in time, they will be on the hook to either receive or deliver the commodity. Futures investors rely on competent brokers to ensure that they are never stuck holding a futures contract when it expires.

Some contracts are deliverable in cash and will price with that in mind. 

The Speculative Limits on Spot Delivery Month Contracts

The US Commodity Futures Trading Commission (CFTC) can limit the size of speculative positions in futures contracts. The CFTC typically strictly limit positions in spot delivery month contracts more than they do with contracts that expire in later months. They restrict the spot delivery trades to prevent excessive speculation and price distortion as the commodities become deliverable. Limits are set based on the actual physical supply of the commodity. The CFTC typically sets less strict limits positions for cash-settled futures markets.