Insider buying and selling: what Forms 4 and 144 show and how to use them

What insider buying and selling is and how it is measured

Net Open-Market Insider Value = Open-Market Purchases (Code P) - Open-Market Sales (Code S)

Under United States federal securities laws, corporate insiders are a public company's executive officers, directors, and beneficial owners of more than 10% of any class of its registered equity securities. Unlike illegal insider trading based on material nonpublic information, legal insider buying and selling takes place during permitted trading windows and is disclosed to the public through Securities and Exchange Commission (SEC) filings. These disclosures allow outside investors to track how executives and board members commit or withdraw their personal capital. Because insiders frequently receive stock grants and options as part of their compensation, financial analysis separates voluntary open-market trades from routine equity awards.

To measure discretionary insider sentiment over a given period, analysts calculate net open-market insider value by subtracting the dollar value of open-market sales (Code S) from open-market purchases (Code P). The same formula can be applied to share counts to find net shares bought or sold on the open market. Investors also measure conviction by dividing the shares traded by the insider's prior shareholdings to calculate the percentage change in ownership. Filtering strictly for Code P and Code S ensures that stock grants (Code A), option exercises (Code M), and tax withholdings (Code F) do not distort the measurement.

How SEC Form 4 and Form 144 filings work

Officers, directors, and 10% owners must report changes in their beneficial ownership on SEC Form 4 within two business days after a transaction is executed. Form 4 contains two main tables: Table I tracks non-derivative securities such as common shares, and Table II tracks derivative securities such as stock options and restricted stock units. Box 3 of Form 4 lists a transaction code that identifies the specific type of share movement. In that field, transaction code P denotes an open-market purchase, S denotes a sale, A indicates a grant or award, M represents an option exercise or derivative conversion, and F marks shares withheld by the company to pay taxes.

While Form 4 reports completed trades, Form 144 is an advance notice of a proposed sale of restricted or control stock under SEC Rule 144. Control stock consists of shares held by company affiliates such as executives and directors, whereas restricted stock consists of unregistered shares acquired through private placements or compensation plans. An affiliate must file Form 144 when a planned sale over any three-month period exceeds 5,000 shares or $50,000 in total value. Filing Form 144 grants permission to sell within 90 days, and if a Section 16 insider completes the sale, a corresponding Form 4 must follow within two business days.

Worked example of insider activity for a hypothetical company

Consider a hypothetical industrial equipment maker, Apex Precision Corp., whose common stock trades at $50 per share. On Monday, several insiders execute transactions that are reported on Form 4 by Wednesday, within the two-business-day reporting window. First, the Chief Executive Officer exercises 20,000 stock options (Code M), has 8,000 shares withheld by the company at $50 per share to satisfy tax obligations (Code F), and holds the remaining 12,000 shares. Second, a longtime board member files a Form 144 notice to sell up to 10,000 control shares and executes an open-market sale of 6,000 shares at $50 per share (Code S) for $300,000 under a pre-planned Rule 10b5-1 schedule.

During the same week, the Chief Financial Officer and two other directors each buy shares on the open market (Code P) at $50 per share. The Chief Financial Officer buys 4,000 shares for $200,000, the first director buys 3,000 shares for $150,000, and the second director buys 2,000 shares for $100,000, totaling 9,000 shares or $450,000. The 20,000 exercised options (Code M) and 8,000 tax-withheld shares (Code F) are excluded because neither represents an open-market trade. Subtracting the $300,000 open-market sale (Code S) from the $450,000 in open-market purchases (Code P) results in a net open-market insider purchase of $150,000, or 3,000 net shares, accompanied by a three-insider cluster buy.

How to interpret insider trades and industry variations

In the aggregate US stock market, open-market insider sales occur far more often than open-market purchases because stock awards make up a substantial portion of executive and director pay. Insiders sell shares for many non-operational reasons, including portfolio diversification, tax payments, and personal liquidity needs. By contrast, an open-market purchase (Code P) requires an insider to spend personal cash to buy stock at market prices, accepting direct financial risk alongside public shareholders. Because buying reflects a single objective, namely the expectation of share price appreciation, research has found cluster buys by multiple insiders within a short window to be more informative than single sales.

Typical ratios of insider buying to selling vary widely across industries due to differences in compensation design and company maturity. High-growth technology, software, and biotechnology companies rely heavily on stock-based compensation, which generates steady Code S sales and scheduled Rule 10b5-1 liquidations throughout the year. Mature companies in sectors such as industrials, utilities, consumer staples, and regional banking pay a higher proportion of cash compensation, resulting in lower baseline insider selling. Regardless of sector, an open-market purchase is most meaningful when it represents a substantial dollar commitment relative to the insider's base salary and meaningfully increases the total holdings reported in Column 5 of Form 4.

Limitations and common mistakes

A frequent mistake when reading Form 4 filings is treating administrative share movements as open-market buying or selling. When an executive exercises expiring stock options (Code M) and immediately sells a portion of the resulting shares (Code S) to cover the strike price and taxes, the transaction is usually routine compensation management rather than a bearish signal. Similarly, share dispositions marked with Code F reflect mandatory tax withholding upon equity vesting and involve no open-market decision by the insider. Even discretionary Code S sales are frequently executed automatically under Rule 10b5-1 trading plans established months earlier, which removes short-term market timing from the transaction.

Investors can also misinterpret Form 144 by treating a notice of proposed sale as an executed reduction in ownership or by counting it twice when the subsequent Form 4 arrives. Because Form 144 merely authorizes up to 90 days of selling, insiders sometimes leave the allowance partially or wholly unused if market conditions change. On the buying side, small open-market purchases made by newly elected directors solely to satisfy corporate ownership requirements carry less weight than voluntary purchases by operational executives. Finally, insiders are restricted from trading on material nonpublic information and can misjudge industry cycles or macroeconomic headwinds even when buying with conviction.

How StockData calculates it

StockData collects SEC Form 4 filings, which officers, directors, and 10% owners must file within two business days of a transaction, as well as Form 144 notices of proposed sales of restricted or control stock. Each transaction is classified by its SEC code: P for open-market purchases, S for sales, A for grants, M for option exercises, and F for shares withheld for taxes. By separating Code P and Code S trades from compensation grants, option exercises, and tax withholdings, and by noting when sales are pre-planned under Rule 10b5-1, the platform isolates discretionary open-market activity.

On StockData's insider page, open-market buys (Code P) are grouped into cluster buys when several insiders purchase shares of the same company within a short window. Academic and empirical research has found these cluster buys to be more informative than single insider sales. Presenting cluster buys alongside individual Form 4 and Form 144 filings allows investors to evaluate coordinated insider conviction without manually filtering routine compensation entries.

Common questions