The short answer
When an executive, director or large shareholder sells stock in their own company, it is called insider selling. These trades are legal as long as the seller is not acting on material non-public information, meaning important facts the public does not yet know. Insiders report their trades to the SEC on Form 4, usually within two business days.
Most insider sales are routine. Executives are paid largely in stock, so selling some of it is how they turn pay into money they can spend. Research going back decades finds that insider sales, taken as a group, say little about where a stock is headed. A minority of sales do stand out, and this guide explains how to spot them.
Who counts as an insider
For SEC reporting purposes, an insider is an officer or director of a public company, or anyone who owns more than 10% of a class of its stock. These people must file a Form 4 when they buy or sell. You can read how the form works in our guide on how to read a Form 4, and what each letter in the transaction column means in Form 4 transaction codes.
A plain open-market sale shows up as code “S.” Shares withheld to pay taxes when stock awards vest show up as code “F,” which is an automatic step and not a decision to sell in the usual sense. Mixing the two together is one of the most common mistakes in reading insider data.
Why insiders sell
An insider can have many reasons to sell that have nothing to do with the company’s prospects:
- Taxes. When restricted stock vests or options are exercised, the insider often owes income tax. Selling shares is a common way to pay it.
- Diversification. A chief executive may have most of their net worth in one stock. Financial advisers would tell anyone in that position to spread the risk.
- Personal spending. Buying a house, paying for college, a divorce settlement, or giving to charity.
- Estate planning. Moving shares into trusts or foundations, which may show up as gifts or sales.
- Leaving the company. Former officers often sell once they are no longer bound by the company’s trading rules.
Because there are so many innocent explanations, a sale on its own tells you much less than a purchase does. An insider who buys with their own cash usually has one main reason: they think the shares are cheap.
Planned and unplanned sales
The most useful single fact about an insider sale is whether it was scheduled in advance.
A planned sale is made under a Rule 10b5-1 trading plan. The insider sets up a written plan while they have no inside information, and a broker carries out the trades later according to fixed amounts, dates, prices or a formula. Since April 2023, Form 4 has had a checkbox showing whether a trade was made under such a plan. Planned sales were decided months earlier, so they generally say little about what the insider thinks today. WallStPal collects them on the planned sales page, and our guide to 10b5-1 trading plans explains how the plans work.
An unplanned sale, sometimes called discretionary, is a decision the insider made on or near the trade date. Unplanned sales still have many ordinary explanations, but they are a closer reflection of the insider’s current choices.
The SEC tightened the rules on trading plans in amendments that took effect in February 2023. Directors and officers now face a waiting period of at least 90 days before the first trade under a new plan. Our guide to the 2023 10b5-1 rule changes covers the details.
What research says about selling versus buying
Several well-known academic studies point the same way: purchases by insiders have carried information about future returns, and sales have carried much less.
Josef Lakonishok and Inmoo Lee, in “Are Insider Trades Informative?” (Review of Financial Studies, 2001), studied insider trading at companies on the NYSE, AMEX and Nasdaq from 1975 to 1995. They found that insiders’ ability to predict which stocks would do well came mainly from smaller companies, and that it reflected insider purchases rather than sales.
Leslie Jeng, Andrew Metrick and Richard Zeckhauser, in an NBER working paper titled “The Profits to Insider Trading: A Performance-Evaluation Perspective” (1999), built portfolios that followed insider trades. The purchase portfolio earned abnormal returns of about 40 basis points (0.40 percentage points) a month. In their words, “The sale portfolio does not earn abnormal returns.”
Lauren Cohen, Christopher Malloy and Lukasz Pomorski, in “Decoding Inside Information” (Journal of Finance, 2012), split insiders into “routine” traders, who trade in the same calendar month year after year, and “opportunistic” traders, who do not. Routine trades made up over half of all insider trades and were “not informative for the future of firms.” The opportunistic trades contained the predictive power. Their headline results combine buys and sells, so this guide does not claim a specific number for sales alone. The lesson still carries over: a sale that breaks an insider’s usual pattern is more interesting than one that repeats it.
These are averages across thousands of trades. They do not mean any particular sale is harmless, and they do not predict what will happen next.
Sales that deserve a closer look
None of the following proves anything. Each is a reason to read the filing more carefully.
Size compared with the holding. Selling 5% of a stake is ordinary. Selling most of it is a bigger decision. WallStPal shows how much of an insider’s holding a trade represents.
Several insiders selling at once, outside any plan. One executive selling is common. A group of officers making unplanned sales in the same few weeks is less common. (The buying version of this pattern is explained in what is a cluster buy.)
A break from routine. An insider who has never sold, or who usually sells in March and suddenly sells in July, fits the “opportunistic” profile from the Cohen, Malloy and Pomorski study.
A plan adopted at a convenient moment. A 10b5-1 plan protects an insider only if they had no inside information when they set it up. Regulators have brought cases where they said plans were adopted after executives learned bad news. Check when the plan was adopted. Since 2023, companies must disclose in their 10-Q and 10-K filings when directors and officers adopt or end plans.
Selling shortly before bad news. If a large unplanned sale is followed by a profit warning, a lost customer or an accounting problem, that pattern sometimes draws regulatory attention. You only learn this in hindsight, which is why it cannot be used as a trading signal.
Sales right after a lock-up ends. Early investors and employees at newly public companies often sell when their IPO lock-up expires. That selling is expected and is usually about cashing out, not about a change in outlook.
How to read an insider sale
A practical sequence when you see a large sale:
- Check the transaction code. “S” is an open-market sale. “F” is tax withholding.
- Check the 10b5-1 box and the footnotes. A planned sale was scheduled in advance.
- Compare the sale with the insider’s remaining holding.
- Look at the insider’s history. Do they sell every quarter, or is this new?
- See whether other insiders are doing the same thing.
WallStPal’s insider sentiment page summarizes buying and selling across the market, and each person’s page under people shows their trading history.
Examples
Jeff Bezos and Amazon, 2024. Amazon’s annual report, filed in early February 2024, disclosed that Bezos had adopted a trading plan in November 2023 to sell up to 50 million Amazon shares by January 31, 2025. Over nine trading days from February 7 to February 20, 2024, his Form 4 filings showed sales of about 50 million shares worth roughly $8.5 billion, according to a Quartz report based on the filings. The amount was enormous, but the plan was public before the selling began. This is a textbook planned sale.
Angelo Mozilo and Countrywide, 2006. The SEC alleged that Countrywide Financial’s chief executive set up four 10b5-1 sales plans in October, November and December 2006 while aware of material non-public information about the company’s rising credit risk. In October 2010 Mozilo agreed to pay a $22.5 million penalty and $45 million in disgorgement, a total of $67.5 million, without admitting or denying the allegations, according to the SEC’s press release. The case shows that a trading plan does not settle the question by itself. What matters is what the insider knew when the plan was created.
Terren Peizer and Ontrak, 2021. The Justice Department said Ontrak’s chairman and chief executive adopted 10b5-1 plans in May and August 2021 after learning that the company’s largest customer was likely to end its contract, and began selling on the next trading day after setting up each plan, with no cooling-off period. When the contract loss was announced in August 2021, the stock fell more than 44%. He was convicted in June 2024 and sentenced in June 2025 to 42 months in prison, according to the Justice Department.
Explain it like I’m 13
Picture the manager of your school store. Part of their pay is in store gift cards. Sometimes they trade gift cards for cash because they need money for a bike, or because they already have more gift cards than they could ever use. That does not mean the store is in trouble.
Now picture the manager quietly cashing in almost all their gift cards the week before the store announces it is closing. That looks very different.
Most insider selling is the first kind. Your job when reading the filings is to notice the rare cases that look like the second kind, and to remember that even those are only clues.
Where the rule comes from
- SEC, Rule 10b5-1 amendments, Release 33-11138 (December 2022, effective February 27, 2023).
- Lakonishok and Lee, “Are Insider Trades Informative?” abstract on RePEc.
- Jeng, Metrick and Zeckhauser, NBER Working Paper 6913.
- Cohen, Malloy and Pomorski, “Decoding Inside Information,” NBER Working Paper 16454.
This guide explains public filings and research. It is not investment advice.
Questions about this guide? Pal reads it with you and answers in plain English.
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