Should you follow to buy the shares of a particular company if the CEO or Director of the company is buying the company’s shares? The idea that insider trading activity may signal some sort of bullishness may be true. After all, they know well enough about the profits and loss and the direction of the company better than normal retailers like us. They have the most up to date information and companies’ prospect much earlier before the flow of information goes to the public.
But before you follow blindly, here are some things to look out for in such situation:
Employee stock options or awards- You need to examine carefully whether these insiders are buying the shares in an open market transaction or via employee stock awards. Most Directors level and above are granted stock options as part of their compensation package when they joined the company. These stock awards can only …