When trading Futures we have several different events to deal with that Equity traders do not when it comes to charting prices. Equity prices trade continuously with no disruption to their prices unless they are delisted from the Exchange, a stock split, are acquired by another company or move to another Exchange to trade on. Futures contracts on the other hand have to deal with contracts on physical Commodities that expire on fixed dates. There are numerous situations that arise from this, but in this article I would like to address another area that the Commodity Futures trader needs to be aware of. Futures contract months that are listed to trade, but not necessarily the one a speculator wants to be trading in. It’s during this time of year when this problem is really obvious in the Grain markets, however other markets have this issue too.

Let’s start with why some Commodity contracts have different expiration months than other Commodities. All Commodity Futures contracts have numerous months trading at the same time. Let’s look at some months in the CMEGroup Exchange Corn contract:

September (U)
December (Z)
March (H)
May (K)
July (N)

These are the deliverable months available for the Corn Futures contract. Every year this is the cycle of expiration months. At the same time there are multi-year months trading too. For example we are currently trading December 2012 contracts and at the same time there are 2013 and in some cases 2014 contracts for December delivery trading simultaneously. Each month in the above cycle has this same multi-year cycle.

During each of these months the contract will expire and there will be a settlement price created on the last trading day of the contract. This price will be used to inform Commercial users of the product what they will pay to take delivery or get paid to make delivery of that particular Commodity for this contract month period.

When the Exchanges create these contracts they are done so knowing exactly what time of the year a particular Commodity will be in more demand than at other times. … Continue Reading