This column was originally published on RealMoney on June 1 at 1:30 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.It is an absolutely awful sign about a company if, after the recent broad selloff, insiders are still selling shares. At best, it indicates a lack of faith that the stock will recover soon. At worst, it could be a sign that executives are afraid that they had better get out now before shares fall even more. These are stocks that I'd suggest investors forget about bottom-feeding on. A little leg work could even uncover a decent short-selling opportunity. Unlike the recent
It also isn't uncommon to see insiders exercise options when their stock falls sharply, and not sell the shares. This is a bullish sign. Letting the shares ride in the open market shows that the insider has faith they will rise in value. The fact that they exercised after a plunge allows them to lower their tax burden, because the difference between the exercise price and market price is suddenly lower. An even better indicator is when the exercise price of options is only moderately below the price the stock has plunged to. It gives a sense of to where the insider believes the stock's price is unlikely to fall. But that's not the case with Onyx or other biotechs such as Progenics Pharmaceuticals ( PGNX) and Quigley ( QGLY).