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For example, let's say that the CEO of Company X has a lot of stock options or is holding a lot of shares in the company he or she is running. If that CEO has reason to believe that the stock market is placing a relatively high a price on Company X's stock, then the CEO is likely to be selling stock. On the other hand, if that same CEO believes the market is undervaluing Company X's stock, you might see that CEO purchasing shares of Company X.

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certicex
certicex
1 year ago

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CEO's son sells the company stock after hearing from his dad that the company will be losing the big government contract.

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hanan
hanan
1 year ago

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Perhaps one of the more interesting examples of insider trading has to do with Eric Schmidt,the CEO of Google. At one time, GOOG was selling for nearly $400 a share and had a P/E ratio of around 69 - which is quite high by any standard.

In 2005, Google reported that the sales of stock options cost the company in the area of $200 million. In fact, as of April 2006 Google has around $370 million in outstanding employee compensation that can be attributed to stock options. With around 6,700 employees, that works out to an average of nearly $55,000 per employee.

Eric Schmidt was perhaps the most active insider trader that day. On April 27, 2006, he conducted a total of 28 transactions selling 460,000 shares of GOOG worth a little over $193 million.

Certainly with the sale of $193 million in stock - just enough money to buy that small island - it is not unreasonable to conclude that the CEO of Google believes that $400 per share is a price at which he would rather sell stock then purchase stock.

This is the kind of logic you want to use when examining insider trading information. As an investor, you should now understand how insider trades can be used to augment other information you've gathered about a company. In fact, we're also going to take a look at stock ownership to see what that information can tell us how the market might feel about a stock.

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thegreeks
thegreeks
1 year ago

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The following are examples of illegal insider trading:

* The CEO of a company sells a stock after discovering that the company will be losing a big government contract next month.

* The CEO's son sells the company stock after hearing from his dad that the company will be losing the big government contract.

* A government official realizes that the company will lose a big government contract, so the official sells the stock.

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Warren
Warren
1 year ago

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For example, let's say that the CEO of Company X has a lot of stock options or is holding a lot of shares in the company he or she is running. If that CEO has reason to believe that the stock market is placing a relatively high a price on Company X's stock, then the CEO is likely to be selling stock.

On the other hand, if that same CEO believes the market is undervaluing Company X's stock, you might see that CEO purchasing shares of Company X.

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Steve
Steve
1 year ago

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When most people hear the term “insider trading” they think of the illegal version. However, the term “insider trading” can also mean the perfectly legal buying and selling of stock by a company’s corporate insiders. Insider trading is legal when these corporate insiders trade stock of their own company and report these trades to the U.S. Securities and Exchange Commission (SEC). That way the insider trading is not kept a secret and anyone can find out a corporate insider’s opinion of his or her company.
Insider trading is only illegal when a person bases their trade of stocks in a public company on information that the public does not know. It is illegal to trade your own stock in a company based on this information but it is also illegal to give someone that information, a tip, so they can trade their stock.

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Harold
Harold
1 year ago

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This refers to the buying or selling of a security based on material information that is not publicly known.

Example:
When a CEO or a corporate insider knows inside information regarding the stocks of the company and discloses this to someone so they sell the stock price before the public announcement is made which materially affects the price of the stock.

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fxpie
fxpie
1 year ago