- Insider trading can be a predictive tool for stock behavior
- The case of Ocean Power Technologies and other cases of stocks under $1 highlight the potential impact of insider transactions
- Understanding the reasons behind insider trades can guide investment decisions
Investors are always seeking ways to predict the future performance of a stock. One underutilized tool that might hold some promise is the analysis of insider trading. To explore this, we ought to first understand what insider trading is.
Insider trading refers to the buying and selling of securities by individuals with access to non-public, material information about a company. These insiders can be company executives, employees, or even shareholders who own over 10% of a company’s shares. While insider trading is illegal when based on non-public material information, "insiders" are allowed to buy and sell stocks of their own companies within specific regulatory parameters.
Indeed, insider trades can tell us a lot about how those with an intimate knowledge of a company view its prospects. Take the case of Ocean Power Technologies, a penny stock traded under $1, where insider transactions had a notable impact. There is often debate regarding investing in penny stocks, but the activities of insiders can provide some interesting insights.
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