Insiders Opting In

Investors understandably apply great significance to every Form 4 filed by Warren Buffett's Berkshire Hathaway (BRK.A - commentary - Cramer's Take) and the insider trades of other well-known business leaders. The excellent track records of certain rock-star insiders or entities make their trades "must review" material for an insider guy like me.

Alas, the financial news media feels the same way. And whenever a big-name insider files a Form 4, the news quickly makes the rounds, often influencing the price of the insider-bought stock at the same time.

That's why the bulk of my insider-inspired picks are generated by lesser-known executives, or lesser-followed tranches of the insider data flow. Even after nearly two decades of following insider data, I still find interesting trades every month by insiders whose names are new to me, even though they sit on several boards and have solid trading track records as per their Form 4s. It's both humbling and exciting -- not to mention usually profitable.

But this column is about one of the lesser-followed aspects of insider information that I've been paying closer attention to recently: insiders opting into their shares.

When insiders exercise their incentive options at below-market prices, they almost always sell them right away for a risk-free profit. Brokerage houses have set up facilities for company insiders to do this in a cashless way so that execs don't even have to pony up the half-million dollars it might take to exercise the options seconds before their lot is sold in the open market for, say, four times that amount. Brokerage firms merely forward insiders the residual of the transaction -- minus a respectable fee, of course.

---

At the time of publication, Moreland had no positions in the stocks mentioned, although holdings can change at any time. Jonathan Moreland is director of research and publisher of the weekly publication InsiderInsights, founder of the Web site InsiderInsights.com and the director of research at Insider Asset Management LLC. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, Moreland appreciates your feedback; click here to send him an email.