Here is a scenario that trips up almost everyone new to insider data. A stock is trading at $4.50. You see an insider filing that says a director "bought" 1.2 million shares at $1.66. That looks incredible, a huge purchase at a massive discount. Except it is almost certainly not an open-market buy at all, and mistaking it for one will lead you badly astray.
THE ONE QUESTION THAT SEPARATES REAL FROM FAKE
An open-market purchase, by definition, happens at the market price. You cannot buy shares on the open market for meaningfully less than where the stock is actually trading. So the single most useful check you can run on any insider "buy" is this: was it priced at, or near, the stock's real trading range that day?
If the reported price sits inside the day's high-low range, it is likely a genuine open-market purchase. If it is far below, it is something else entirely, no matter what the transaction looks like at a glance.
Rule of thumb: a "purchase" recorded well below the stock's actual price on that date is not open-market conviction. It is an option exercise, a warrant, or a subscription, filed in a way that can look like a buy.
WHAT THOSE BELOW-MARKET BUYS ACTUALLY ARE
Option and warrant exercises. Executives are granted options with a fixed strike price, often set years ago when the stock was much cheaper. When they exercise, they acquire shares at that old strike, not the current price. It is converting compensation, not making a fresh market bet with a view on today's value.
Subscriptions and private placements. Companies raising money sometimes let insiders buy new shares at a fixed, discounted price. The insider is participating in a financing, which can be a mildly positive sign, but it is a very different thing from stepping into the open market and paying up at the current price.
Rights offerings. Similar idea. Existing holders get to buy more shares at a set price, often below market. It is a mechanical opportunity, not a spontaneous conviction buy.
WHY IT MATTERS SO MUCH
These below-market transactions pollute almost every free insider feed. If you count them as bullish buys, you will constantly see enormous "insider purchases" on stocks where no insider actually chose to pay the market price. Worse, because the reported price is so low, these fake buys make the stock look like it has already produced a massive gain, distorting any attempt to measure how insider signals actually perform.
The purchases that carry a real signal are the ones where an insider looked at the current price, decided it was cheap, and paid it anyway. Everything else is noise wearing the costume of conviction.
The clean signal: an open-market purchase at or near the current market price, ideally by a senior insider, in size, and as a break from routine. That is the version of "insider buying" that decades of research actually reward.
HOW INSIDERTAPE HANDLES IT
This is one of the core problems InsiderTape solves automatically. Every purchase is checked against the stock's actual trading range on the transaction date, and buys priced far below the market, the option exercises, warrants, and placements, are stripped out. What is left is genuine open-market conviction, so the signals you see are the ones that mean something.
For the bigger picture on which insider buys carry weight, see whether insider buying is bullish and how 10b5-1 plans change the read.
SEE ONLY THE REAL INSIDER BUYS
InsiderTape strips out option exercises, awards, and placements automatically, then flags cluster buys, CEO conviction, and first buys in years the moment they file. Start a free 7-day trial, cancel anytime.
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