When a company's officers, directors, or 10% shareholders buy or sell its stock, they have to report it to the SEC on a Form 4, usually within two business days. These filings are a rare public window into what the people who know a business best are doing with their own money. The catch is that not every Form 4 reflects a real decision, and the transaction code tells you which is which.
| Code | Meaning | What it tells you |
|---|---|---|
| P | Open-market purchase | Insider bought with their own money |
| S | Open-market sale | Insider sold shares |
| A | Grant or award | Shares received as compensation |
| M | Option exercise | Converted options into shares |
| F | Tax withholding | Shares surrendered to cover taxes |
| G | Gift | Shares given away, no sale |
| C | Conversion | Derivative converted to stock |
| X | In-the-money exercise | Exercised a profitable derivative |
The two codes that matter most
A P (open-market purchase) and an S (open-market sale) are the codes worth paying attention to, because they represent a voluntary choice. When an insider buys shares on the open market with their own cash, they are making a bet, and code P is the clearest bullish signal in the whole system. Insiders buy for one reason, because they expect the stock to rise, while they sell for many reasons.
That asymmetry is the single most important thing to understand about insider data. A purchase is a stronger signal than a sale, because a sale can be about a house, a divorce, taxes, or simple diversification, none of which say anything about the business.
The codes that are mostly noise
Most Form 4 volume is routine compensation mechanics, not conviction:
- A (grant or award): the insider was given shares as pay. They did not choose to buy; the board handed them stock.
- M (option exercise): the insider converted vested options into shares. Often paired with an immediate sale.
- F (tax withholding): shares automatically surrendered to cover the tax bill on vesting. This is an accounting event, not a decision.
- G (gift): shares given away, frequently for estate planning or charity.
These codes fill up the insider feed but tell you little about conviction. A screen that treats every Form 4 as equal will drown the real signal in routine comp activity.
One more wrinkle: scheduled sales
Many insider sales happen under a 10b5-1 plan, a pre-arranged schedule set up months in advance so executives can sell without accusations of trading on inside information. A sale executed under such a plan was decided long before the sale date, so it carries far less signal than a discretionary sale. Form 4s increasingly flag whether a trade was made under a 10b5-1 plan, and it is worth checking before reading anything into a sale.
Putting it together
Read the transaction code first. If it is a P, pay attention: someone with an information advantage just put their own money into the stock. If it is an S, check whether it was scheduled and how it compares to the insider's overall holdings before reading anything into it. If it is an A, M, or F, it is most likely routine compensation.
For the next level, see our guide to insider buying signals that actually matter. SignalX aggregates every Form 4 with its code, share count, and price, so you can filter the conviction trades out of the routine ones. Explore the insider trading screener to start.