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What Is a Blue Month?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 24 November 2016
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A blue month is a trading month in which the activity involving various types of derivatives is considered especially aggressive and frequent. The month will involve heavy trading on all forms of derivatives, including futures and options, meaning that the actual range of investments involved in the blue month trading may focus on a relatively small sector of the market or be inclusive of just about the entire market. While this type of trading activity may be somewhat harder to detect than the general trading activity that includes all investments, identifying a month that is likely to be considered blue can be very lucrative for both individual and institutional investors.

Identifying the possibility of an upcoming blue month can be very important for investors who make money from hedge funds, futures on commodities, and similar ventures. This is because the ability to predict increased trading on those assets can also make it easier to determine when those assets can be acquired or sold to best advantage. For example, if an investor currently holding futures that are set to mature in six months knows that trading on those futures will be very aggressive in a couple of months, he or she may consider selling those assets during the blue month, rather than waiting for the culmination of the futures contract.

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While the blue month is distinguished by an unusually high volume of derivatives trading during the thirty-day period, there is sometimes disagreement on what criteria is used to determine what constitutes a high volume. In some instances, analysts will identify a benchmark that is based on a previous period that was more or less universally considered to constitute a blue month, and award that same designation to an upcoming period that is anticipated to experience a similar volume of trading. At other times, a month may be considered blue if the anticipated level of trading is significantly more than during any month in the current calendar year. Understanding why a given month is considered blue will provide additional insight into whether or not investors should be prepared to participate in the flurry of transactions, or continue to employ their usual investment strategies.

The designation of a blue month does not guarantee any particular outcome for the investors participating in the trading activity. There is still a need to assess the potential of each purchase and consider the ramifications of selling a derivative during this period. Only by weighing the risks against the possible rewards can an investor decide if blue month trading should involve anything out of the norm, or if there are compelling reasons to buy or sell in increased volumes during that time frame.

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