When you think of the words “insider buying” I bet you immediately think of either the Martha Stewart insider trading scandal or the movie Wall Street.
Yes, insider trading as defined by the rather complex laws surrounding what constitutes insider stock trading is quite illegal but there is a little known legal form of insider trading that is available to anyone.
You see, by law top company officials like CEOs and VPs must file forms with the SEC whenever they buy or sell any of their company’s stock and since the SEC is a government agency this information is available to the public.
Every trade that senior officials make in their company’s stock must be documented and a cottage industry has sprung up selling these aggregated insider trading reports to the public for very reasonable prices.
Now why would anyone want to know if Steve Jobs is selling large blocks of his Apple stock? Well, it could be a number of things such as part of his long range estate planning or perhaps for a charitable donation.
But, it could very well be that this insider selling along with sales by other Apple officers indicates that Apple is looking at some hard times ahead that could cause the price of the stock to drop sharply.
Conversely if there is a lot of insider buying of a stock by senior officers that could mean that bullish news is forthcoming with a rapid rise in the stock’s price to soon follow.
While this type of discretionary trading strategy is not foolproof (none are) many people do make a nice profit trading on insider information using a few rules of thumb.
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