When the people who run a company buy its shares with their own money, they have to say so publicly within two business days. Those filings — SEC Form 4 — are free to read, and they are one of the few places an outside investor sees what insiders actually do rather than what they say. Most of them mean very little. This guide shows how to tell the few that might from the many that do not.
“Insider trading” usually makes the news when it is a crime: trading on material information the public does not have. Most insider trading is entirely legal. Directors, officers and anyone owning more than 10% of a company’s shares — the people Section 16 of the Securities Exchange Act calls insiders — may buy and sell its stock, provided they report every transaction.
Three forms cover it. Form 3 is filed when someone becomes an insider, Form 4 within two business days of almost any change in their holding, and Form 5 once a year for the few transactions allowed to wait. Form 4 is the one that matters: it is fast, it is detailed, and it covers buying and selling.
A Form 4 is short. Read it in this order:
Of everything on the form, two fields decide whether it deserves a second look: the transaction code and the size of the trade against what the insider already owns.
Every row carries a one-letter code saying how the shares changed hands. The same direction — shares going up — can mean a purchase or a grant, and only one of those involves a decision about price.
| Code | Meaning | How to read it |
|---|---|---|
| P | Open-market purchase | The insider paid market price with their own money. The code worth the most attention. |
| S | Open-market sale | Sold at market. Common and usually routine — taxes, diversification, a house. |
| A | Grant or award | Shares or options received as pay. No decision about price was made. |
| M | Derivative exercised | Options or units turned into shares. Often followed by an S or an F the same day. |
| F | Shares withheld for tax | Shares handed back to cover tax on vesting. Mechanical, not a sale by choice. |
| G | Gift | Given away — to family, a trust or a charity. Says little about the business. |
| D | Disposition to the issuer | Shares returned to the company itself, for example in a buyback from the insider. |
A practical filter: ignore everything that is not a P or an S until you have a reason not to. Most rows on a typical day are awards, exercises and tax withholding.
Insiders sell for many reasons: tax bills on vested shares, a house, school fees, diversifying a fortune that sits in one stock. They buy in the open market for essentially one — they think the shares are worth more than the price. That asymmetry is the core of every serious reading of insider data, and academic studies going back to the 1980s have generally found purchases more informative than sales.
So a single sale, even a large one, is rarely news. A run of sales by several insiders outside any 10b5-1 plan, or a founder cutting a stake they had held for decades, is worth reading about. A purchase is worth a look almost by default.
Insiders are often early, and sometimes simply wrong. They know their company better than anyone, which also makes them prone to loving it. A purchase says that someone with better information thinks the price is too low; it does not say by how much, or over what horizon, or that the market will agree soon.
Treat it as a reason to do the work, not as the work. The questions that follow are the ordinary ones: is the business any good, what is it worth on its own numbers, and what does the price already assume?
When a purchase catches your eye, a short checklist:
In Lemma Analysis, Form 4 filings arrive in the Insiders tab of the news feed and on each company’s News tab, labelled with the plain-English meaning of their code and whether shares were bought or sold. The feed is free on every plan, including for the companies on your watchlist.
Educational only. Not investment advice.
Lemma Analysis gives independent investors both lenses in one terminal — a stock screener and an intrinsic value tool for the fundamentals, alongside price history and charts for timing.