Calculation and mechanics
Futures use twelve standardised month codes: F January, G February, H March, J April, K May, M June, N July, Q August, U September, V October, X November, Z December.
Not every futures market offers contracts for every month. Many equity index futures, for example, have the quarterly months H, M, U and Z, while other expiry patterns are common for agricultural products. Corn, for instance, trades in H, K, N, U and Z.
The nearest contract is not always the most traded one. As an expiry approaches, many market participants switch to the following contract. Trading volume and Open Interest therefore shift before the actual expiry. The following contract can thus become the active main contract earlier. For physically settled futures many traders also leave the expiring contract before the delivery process begins, for example before the first notice day.
For the analysis of implied volatility the nearest contract is therefore not necessarily used either. Shortly before expiry its short remaining time can strongly affect the option figures.
Contract symbols are typically made up of underlying, month code and year. The exact notation can differ slightly depending on exchange, data provider or broker.
Symbol = underlying + month code + year, for example ES + Z + 6 = ESZ6
Distinction
A Continuous Future links several consecutive futures contracts into one continuous price series. The front month, by contrast, refers to a single contract.
The Futures Term Structure shows several expiry months at the same time. The front month usually forms the near end of the curve.
The Expiration of an option on a future does not have to coincide with the expiry of the underlying future. In many markets the option expires earlier.
Related terms
- Futures Term Structure (Futures curve, forward curve)
- Continuous Future (Continuous contract, ES1!, ES=F)
- Roll Yield (Roll return, roll effect)
- Open Interest (OI, open contracts)
All market and analytical information is provided for educational and analytical purposes only and does not constitute investment advice or a trading recommendation.