Corporate insiders - CEOs, CFOs, board members, and major shareholders - have the deepest understanding of their companies. When they buy or sell stock, they must report it to the SEC. By screening these filings, investors can gain insight into what those closest to a company expect. Here is how to effectively screen for insider trading activity.
What is Insider Trading Screening?
Legal insider trading occurs when corporate insiders buy or sell their company's stock and report it to the SEC via Form 4 filings. These transactions are public information and can signal insider confidence or concern. Studies show that following insider buying, in particular, can generate above-market returns.
Key asymmetry: Insiders sell for many reasons (diversification, taxes, planned sales), but they buy for only one reason - they expect the stock to go up. This makes insider buying more significant than insider selling.
Essential Insider Screening Criteria
Transaction Type
Focus on open market transactions:
- Open market purchase: Most significant (voluntary buying)
- Open market sale: Less predictive but worth noting
- Avoid: Option exercises, automatic sales plans (10b5-1)
- Avoid: Gift transactions, estate distributions
Transaction Size
- $100,000+: Meaningful purchase
- $500,000+: Significant conviction
- $1 million+: Major insider bet
- Multiple insiders: Cluster buying is very bullish
Strong Insider Buying Screen
Transaction type: Open market purchase
Purchase value > $100,000
Insider role: CEO, CFO, or Director
Filed within last 14 days
Company market cap > $500 million
This screens for meaningful, recent insider purchases by key executives.
Who Are the Insiders?
High-Signal Insiders
- CEO: Most informed about company direction
- CFO: Best view of financial health
- COO: Understands operational performance
- Board members: Broad strategic insight
Lower-Signal Insiders
- 10% owners: May be funds with different motivations
- VP-level: Narrower view of company
- General counsel: Less operational insight
Understanding Form 4 Filings
Form 4 must be filed within 2 business days of a transaction:
- Transaction date: When the trade occurred
- Transaction code: P (purchase), S (sale), A (award), etc.
- Shares traded: Number of shares
- Price per share: Transaction price
- Shares owned after: Total position
- Ownership type: Direct or indirect
Look for context: A $200,000 purchase is more meaningful if it doubles the insider's position than if it represents a 1% increase to an already large holding.
Cluster Buying
Multiple insiders buying is the strongest signal:
- 3+ insiders buying: Very bullish consensus
- Same time period: Within 30 days of each other
- Different roles: CEO, CFO, and director all buying
- Following bad news: Insiders see opportunity others miss
Timing of Insider Trades
Bullish Timing Patterns
- After stock decline: Buying the dip shows confidence
- Before earnings: Insiders expect good news
- During market panic: Counter-cyclical conviction
- New executive buying: First purchases signal optimism
Bearish Timing Patterns
- After big run-up: Taking profits at highs
- Heavy selling before events: May anticipate problems
- CEO/CFO selling most holdings: Losing confidence
Comprehensive Insider Screen
A complete insider trading screener:
- Transaction type: Open market purchase
- Total value > $100,000
- Insider role: CEO, CFO, COO, or Director
- Filing date: Within last 30 days
- Market cap > $300 million
- Average volume > 200,000 shares
- Increase in holdings > 10%
Filtering Out Noise
Many insider transactions are not informative:
Ignore These Transactions
- 10b5-1 sales: Pre-planned, automatic selling
- Option exercises then sell: Paying taxes, not betting
- Gifts: Estate planning, not investing
- Small transactions: Under $25,000 often not meaningful
Quality Filters
- Exclude 10b5-1 plan transactions
- Require open market (code P or S)
- Minimum transaction size threshold
- Focus on direct ownership
Using Insider Data
As a Buy Signal
- Screen for significant open market purchases
- Verify the insider's role and track record
- Check if purchase increases position meaningfully
- Combine with other analysis (fundamentals, technicals)
- Consider whether cluster buying is present
As a Sell Warning
- Watch for heavy selling by multiple insiders
- Note selling of large portions of holdings
- Be cautious of selling before major events
- But remember: selling alone is less predictive
Historical Insider Success
Research shows:
- Stocks with insider buying outperform by 3-7% annually
- Cluster buying shows even stronger outperformance
- Small-cap insider buying is more predictive than large-cap
- Insider selling is weakly predictive at best
Track Your Insider-Driven Trades
Pro Trader Dashboard helps you analyze how your insider-based trades perform. Track your entries, exits, and results over time.
Summary
Insider trading screening provides a window into what corporate executives think about their own companies. Focus on open market purchases by CEOs, CFOs, and directors with significant dollar amounts that meaningfully increase their positions. Cluster buying by multiple insiders is the strongest bullish signal. Filter out automatic sales plans, option exercises, and small transactions. Use insider activity as one factor in your investment decisions, combined with fundamental and technical analysis.
Learn more: fundamental analysis and value stock screening.