This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Best of Kass

NEW YORK ( TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

Among his posts this past week, Kass explained how you should interpret insider selling, why he's shorting Goldman Sachs (again) and why Facebook has "sell" written all over it.

Please click here for information about subscribing to RealMoney Pro.

When Insider Selling Matters
Originally published on Thursday, Feb. 28 at 12:25 p.m. EST.
  • If an exec cashes in five years before his option expires, that's a red flag.

One question I get a lot from subscribers is, how should insider selling be interpreted, and when should we consider insider selling as an important factor in our investment decisions?

Most insider sales are either outright share sales, 10b5 programs or the exercise of options (and subsequent sale of stock).

Obviously, outright, unscheduled insider sales are always a red flag, though there are often good reasons for such sales (diversification, estate planning, change in family status, etc.).

A majority of insider selling today is through planned 10b5 programs.

The plan must:
  1. Specify the amount, price (which may include a limit price) and specific dates of purchases or sales, or
  2. Include a formula or similar method for determining amount, price and date, or
  3. Give the broker the exclusive right to determine whether, how and when to make purchases and sales, as long as the broker does so without being aware of material, nonpublic information at the time the trades are made.

Given the design and structure of 10b5 programs, they are rarely a signal of concern.

But another, less obvious red flag is generated on the execution of options and immediate sale of stock. This occurs not at all times but clearly when an executive exercises options and sells stock well in advance of the scheduled expiration of the option. After all, if one has confidence in a business, why not wait and allow a company to flourish and grow?

A good case in point (one in which a red flag is raised), is this recent transaction by an insider who exercised options and sold Grand Canyon Education (LOPE - Get Report) shares last week.

In this transaction, we can see an insider sale in February in which one of LOPE's executives has exercised options on three separate lots (of 50,000, 8,717 and 12,339 shares) between Feb. 22 and Feb. 25, 2013. The shares were exercisable at $12 a share (on Nov. 19, 2009, and Nov. 19, 2010) and were sold between $25.00 and $25.50 a share.

The most important factor in evaluating this option exercise and sale is how far out into the future the options expire. In this case, the options expire well out into the future, on Nov. 18, 2018.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Real Money
Try it NOW

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Back to Nasdaq


Chart of I:DJI
DOW 17,820.07 +7.88 0.04%
S&P 500 2,089.46 +0.32 0.02%
NASDAQ 5,109.0130 +6.2050 0.12%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs