Insider buying: what happens when executives buy their own stock

A company's CEO just bought half a million dollars of the company's stock with their own money. Is that a good sign? Often — yes, but not always. Insider trades are public information that anyone can see. What matters is telling the filings that actually say something apart from the ones that are just noise.

Who is an insider and what is Form 4

Under US law, a company's officers, board directors and owners of more than 10% of its shares are insiders. When they trade their company's securities, they file Form 4 with the SEC — within two business days of the transaction (SEC investor bulletin).

"Insider trading" here means legal, disclosed trading. Trading on material information that hasn't been made public is prohibited — that's a different thing.

The most important thing — the transaction code

Every Form 4 entry has a letter code. Most entries are not a market view:

• P — a purchase on an exchange or from another person. The insider puts in their own money — the most meaningful entry.
• S — a sale on an exchange or to another person.
• A — a grant or award from the company (e.g. stock as part of pay).
• M — exercise or conversion of an option or other derivative.
• F — handing part of the shares back to the company to pay an exercise price or tax.
• G — a gift.

Behind a headline like "Executive acquires 100,000 shares" there is often an A (award) or M (option exercise) — nobody put their own money in. So the first question is always: is the code P?

Why buys matter more than sales

Insiders sell for many reasons: paying taxes, buying a house, diversifying. But there's usually one reason to buy — they think the stock is cheap.

Academic research points the same way:

• Lakonishok and Lee (2001), using 1975–1995 data for NYSE, AMEX and Nasdaq, found that insiders' predictive ability comes from purchases, while sales show almost no predictive power; the effect is concentrated in smaller companies (EconPapers).
• Jeng, Metrick and Zeckhauser, on 1975–1996 data, report that a portfolio of insider purchases earned about 0.4% per month in abnormal returns, much of it in the first month after the trade, while the sales portfolio showed no abnormal returns (NBER).
• Cohen, Malloy and Pomorski (2012) show that more than half of insider trades are "routine" (repeated in the same month every year) and carry no information, while "opportunistic" trades earned about 0.82% per month in abnormal returns (NBER).

These are historical averages. They ignore commissions and liquidity, cover older periods, and such an edge may shrink as the data becomes widely available. Any single purchase is no guarantee: insiders get it wrong too.

10b5-1 plans: pre-scheduled trades

Many executives pre-schedule sales under a Rule 10b5-1 plan — "sell 10,000 shares on the 15th of every month". Such a sale says little about their current view.

Since 1 April 2023, Form 4 has a dedicated checkbox for trades under such a plan. Directors and officers also face a cooling-off period before trading under a plan can start: the later of 90 days after adopting the plan or 2 business days after the quarterly results are disclosed, but no more than 120 days (SEC fact sheet).

6 questions to evaluate a purchase

1. Is the code P? Grants, options and gifts don't count.
2. Who bought? The CEO or CFO knows the company best. A fund that owns 10%+ trades for its own reasons.
3. How many insiders? Several executives buying at the same time (a cluster) is a stronger sign than one purchase.
4. How big is it? For a billionaire, $50,000 is a token amount. Compare the purchase with the insider's existing stake.
5. When? Buying after a sharp drop means "the market is wrong". But companies have blackout periods before earnings — timing isn't random. More on earnings season: earnings season guide.
6. How fresh is it? A Form 4 can arrive up to 2 business days after the trade. By the time you see it, the price may already have moved.

Insider data on limitup

The data comes straight from Form 4 filings on SEC EDGAR.

• On the stock page (in your account), the "Insider trading" block: the last 180 days, up to the 40 most recent filings. Buys and sales are shown separately, with how many different insiders took part and what share of sales were under a 10b5-1 plan. Grants, option exercises and tax withholding are only counted — they're not a market view. Data is cached for up to 6 hours.
• ETFs and foreign issuers (many ADRs) don't file Form 4 — an empty block for them isn't an error.
• Morning digest (Telegram, if enabled): purchases filed in the last 3 days — for stocks on your watchlist at any size, plus the 3 largest above $100,000 from the halal universe.

To be upfront: we started collecting insider purchases into a daily database at the end of September 2026. That history is still too short to measure, in our own data, how stocks moved after insider buying. So this article has no statistics of our own — once enough data has accumulated, we'll publish a separate study.

Don't mix it up with halal status

An executive's purchase doesn't make a stock halal. If a company's revenue or debt doesn't meet AAOIFI requirements, no amount of insider buying changes that. First check the current status in the halal stocks list or on the stock's /halal/<TICKER> page, then look at insider data as an additional signal.

Summary

• Only P (open-market purchase) is meaningful; grants and options are noise.
• Sales say little, especially under a 10b5-1 plan.
• Clusters, large size and unusual timing strengthen the signal.
• Insider buying isn't a standalone trading signal — it's an input to your analysis. On how to read signals: what a signal is and isn't.

To see the insider block on stock pages, sign up.

This article is for information only, not investment advice.