Form 4 and Insider transactions

Right before tuning out to watch a video after dinner last night, I noticed a thread on a message board. Sure enough, 6 insiders (Director level) of this biotech company acquired massive shares during the trading day. I immediately made plans to buy more shares in the morning, after catching it at a previous low earlier in the week.

Shares leaped up in pre-market trading, and I placed a perfect limit order that got filled early morning at the intraday low, before rising even more this a.m. as I post.

One can detect company insider buying and selling by perusing Form 4 on the SEC website. Company insiders have the best knowledge and perspective on the prospects of their company. That's why they must register with the SEC when they buy or sell shares, as they possess privileged knowledge. As investors, we can sometimes take advantage of this transparency. When they buy en masse, it pays to sit up and take notice. Insiders aren't perfect traders--they can mistime markets too, but when they buy, it denotes confidence in their companies--especially when they buy in the open market.

Company insiders may have many reasons for selling--exercising of expiring stock options, funding college tuition, purchasing homes, periodic diversification into other assets, etc. Insider selling in and of itself doesn't necessarily red-flag an impending top of share prices. But heavy insider buying or selling at least warrants attention and further due diligence. That's why I bought more this morning, and why I am glad I bought earlier in the week: http://www.sec.gov/cgi-bin/browse-idea?company=&match=&CIK=arna&filenum=&State=&Country=&SIC=&owner=include&Find=Find+Companies&action=getcompany

Do your own due diligence as investing carries risk. This is not a recommendation.

Disclosure: I am long ARNA shares and selling covered calls.