Blue Month

“Once in a blue moon…” goes the song from Little Mary Sunshine, a musical which you've, uh...never heard of.

Or...perhaps you’re familiar with the common expression, as in, “Once in a blue moon, Pat will buy a round of drinks.”

Referring to a month that has two full moons instead of the usual one, the term blue moon has now come to mean a rare event.

And the moon isn’t even necessarily blue. In the finance world, a blue month is one in which trading on options and futures contracts are the most active. It could happen in any particular month, but hedge fund managers and large financial institutions study a blue month to find any trading signals that indicate whether the market will go up or down.

Example.

Maureen owns 15,000 shares of Future for You, Inc. that are valued at $2.50 a share. Looking at the general direction of the market, she starts to worry that the price could go down. So she decides to protect herself, entering into a futures contract with James, who thinks the price will go up.

Their contract states that James will buy Maureen’s 15,000 shares one year from now at $2.50. When many such contracts are taking place during the same month, that’s a blue one.