Lanre Sarumi is the CEO of Level Trading Field, an interactive online platform for professionals in the finance industry.

When you read you begin with A, B, C.

When you sing you begin with Do, Re, Mi.

When you trade futures you begin with F, G, H, J, K, M, N, Q, U, V, X, Z.

Each of those letters represents the month of the year that the contract expires. Remember, with a futures contract, two counterparties agreed on a fixed price and date to trade an asset. The month of that date is represented by those letters.

I don’t know who came up with that nomenclature or how. Just memorize it and move on. Although I’m sure there is going to be some know-it-all in the comment section saying “I know!, I know!”

The products traded on the exchange also have product codes. Heating oil is RB, crude oil is CL and the bitcoin futures set to trade on the CME starting Dec. 18 will be BTC. On the CBOE, which introduced its bitcoin futures contract Sunday, the bitcoin product code is XBT.

If you want to trade the Jan. 2018 bitcoin contract, then, you will be trading BTCF8. BTC again represents bitcoin futures, “F” is the January code, “8” represents the year, 2018. If you want to trade the February 2018 BTC contract you trade BTCG8.

Pop quiz

What if you want to trade the Nov. 2017 BTC contract, what would it be called?

If you said BTCX7, you would be correct, but it’s a trick question. We are in December 2017. The November contract, if it had existed, would have long expired by now. That brings up a very important point: If you have an open position in a physical delivery contract, you are subject to delivery.

If, for instance, you are long the gasoline contract, you may want to notify your neighbors that 42,000 gallons of Reformulated Gasoline Blendstock for Oxygen Blending may be rolling up anytime soon.

In the case of CME and the CBOE Bitcoin futures, however, the contract is cash settled. What this means is on the final day of the contract, the buyer is paid the difference between the value of the futures contract and the settlement price if the settlement price is higher than the value of the futures contract. If the value of the futures contract is greater than the settlement price, the seller is paid the difference. In dollars, not bitcoin.

What happens if you want to hold on to your futures position after the futures contract expires? If you are long the contract you can simply sell it and buy the contract for the next month. This sounds simpler than it is in practice. Remember the market is constantly moving on all contracts. If you don’t mind paying a significant cost to do so then it really is a simple process. If you do, then you probably want the two-step process to happen simultaneously.

The process of selling or buying a futures contract and then simultaneously doing the opposite (buying or selling) another contract that expires later, is called spreading. Since the only difference between the two futures contracts is the expiration date, it is specifically called calendar spreading. If, after the process, you end up with opposite positions in two contracts, then you own a calendar spread.

Futures traders do a lot of spreading. Some do it for the reason described above, rolling an existing position into another month. Others do it to trade the price difference between two months.

If, for instance you know that a hard fork in the bitcoin blockchain is coming in March 2018 and you believe as a result of the fork, the March contract will be more valuable than the February 2018 contract, you can simultaneously sell the February contract and buy the March contract. You make money if your thesis is true and you can effectively do the trade as simultaneously as possible.

Some traders can pull this off successfully at very little cost, others successfully at very high cost. The definition of success for the latter group is an indulgence in generosity. The first group are usually high-frequency traders with fast computers.

The second group are folks not to0 dissimilar from the ones reading this article.

One and done

The futures exchanges, in the never-ending quest to help, and of course make a chunk of cash helping, have simplified the process.

You can buy or sell calendar spreads as a single contract. The exchange takes on the task of performing the process as one operation, so the trader is guaranteed to get the two positions at the same time. These are called exchange-traded calendar spreads. If you did the two-step process yourself, you end up with the same thing, but you executed a synthetic calendar spread.

Remember the exchange codes? Exchange calendar spreads wanted to join the party, so they were given their own names. The February/March calendar spread for bitcoin is at the CME is BTCG8-BTCH8. In other words, the February 2018 contract “minus” the March 2018 contract.

Essentially, the exchange calendar spreads are always long the first month and short the second month. If your goal was to sell the February contract and buy the March contract (your hard fork thesis), then you simply sell the BTCG8-BTCH8 exchange calendar spread.

If you are new to futures trading that is probably a lot to process. There is still a little more to learn before you print out your “Certified Futures Trader” certificate. In the next few articles, I’ll talk a little more about butterfly spreads, condors, box spreads andinter-commodity spreads.

After that, can you print out your “certified futures trader” certificate? Nope. You still have to learn about implied prices and how they affect the spreads.

After that, can you print your certificate? Nope, you still have to learn about price banding, price limits, contract size, and tick price.

After that you still have to learn about …. wait, where are you going?

Colorful letters via Shutterstock