Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be talking about how to use an insider trading report. We’re not talking about the illegal version of insider trading reports which is really bad, where you can go to jail if you're distributing insider information, but we’re talking about the insider trading information that we can garner from SEC form number four and this is basically a form that many people who are insiders or have a significant equity stake in different publicly traded companies have to file any of their distributions, sales, options exercise, purchase, any of that stuff, they have to file with the SEC. And so, it’s really cool because what you can actually see is you can see what insiders in the company are doing. In particular, I like to glance at this if I’m ever invested in a stock or if I’m ever looking at a particular stock. I would definitely be interested in seeing what insiders are doing. Are the CEO and the chairman and senior vice presidents, are they buying stock on a reoccurring basis or are they starting to dump stock for some reason? Now, in many cases, there could be ulterior motives to people doing this. Somebody might get their compensation through stock. They might sell stock, but that doesn't mean that they have a negative bias or bearish bias on their underlying company. They just need to sell some stock to get payments, to make the bills and that could be potentially the case. I think it's tough to always say that if somebody’s buying, that that means that they’re bullish and if somebody’s selling, that means that they’re super bearish and they think things are going to go down. You have to look at it potentially with options exercises if you start going down this rabbit hole.
One place that I think is really a great place to look at these filings in one simple place (and it’s totally free, it’s open and available to everybody) is through Finviz, finviz.com and they have this tab called “insider” which basically lists all the most recent insider trading activity for many of the publicly traded companies, especially the large companies. What I can see right now, actually just going to Finviz, is that yesterday, the CEO of Netflix actually exercised an option and sold then 52,000 shares of stock. That value was about $19 million, so I don’t know if that was his quarterly or monthly payment for his job as CEO, but in any case, he did end up exercising his option position and selling 52,000 shares of stock which is again, interesting because if this becomes a pattern, if you're somebody who’s interested in Netflix and you start following what insiders are doing in Netflix and you start to see a pattern of people at high levels, particularly the CEO start dumping a lot of their shares and not repurchasing shares later on, that might lead you to believe that they think that Netflix is overvalued or potentially fairly valued in the market. Again, I think you have to take all this with a grain of salt. I don’t think there's any clear definable edge. I think it’s just another tool in your toolbox when you start going down the path of analyzing securities or stocks that you are either forced to be invested in or have to invest in for some reason or if you can’t trade options and you have to trade stocks, this is something I would definitely take a look at if you have a chance. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.
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