The Money Angle

Insider selling that’s…bullish?

I referenced one of Kevin’s articles about funding trades in Thursday’s letter. I have several of Kevin’s tweets saved. This one is a counterintuitive argument for why the stock’s left tail is probably smaller than you think. In a June 9th tweet, Kevin considers one of ASTS insider sales:

Scott W sold 50k shares today. Here are a few things to keep in mind:

This sale was NOT made under a 10b5-1 automatic trading plan.

Many insiders use 10b5-1 plans that pre-schedule sales based on price targets or preset dates. The benefit is that these plans are adopted well in advance and help shield the insider from allegations of trading on material nonpublic information (MNPI).

Since this was not a 10b5-1 sale, it appears Scott made a discretionary decision to sell, likely recently. He sold about 10% of his holdings, which is a very reasonable action for personal liquidity or diversification.

Importantly, if Scott were aware of materially negative, nonpublic information (e.g. major technical failure, regulatory issue, or business disruption), securities law and internal compliance would typically prevent him from selling. Doing so could expose him to legal risk and internal disciplinary actions.

So while insider sales are typically not a bullish signal, this one significantly reduces the probability of catastrophic near-term news…the idea is the left tail is less likely to occur due to the insider sale, so it makes the left tail worth less.

The thread caught my eye because it’s a neat example of an action that affects your opinion of the tail more than the heart of the distribution. The sale likely has no influence on general bullishness/bearishness but there’s a good chance an insider wouldn’t want to be seen selling shares off-cycle right before some terrible news came out and if they were willing to take that risk in possession of MNPI it doesn’t really make sense to do so with a token amount of shares.

For whatever it’s worth, ASTS is up about 41% since June 9th.

For a frame of reference:

ASTS is about a 100 vol name.

It’s been 76 biz days since June 9th or .30 of a 251-day year.

For a 100 vol name, 1 standard deviation is 100%*√.30 = 54% so the move is well within the range one might expect given its vol.

Created with TradingView
editor

Recent Posts

useless NOISE

This is what ZeroHedge posted after NVDA earnings: and now NVDA is flat. straddles were…

2 days ago

Example of “measurement not prediction” in the wild

A reader replied enthusiastically to my 2-week-old post when logic and proportion have fallen sloppy dead giving…

2 days ago

the math of investing

As I’ve shared here before, I spun up an investing class for middle and high…

5 days ago

Moontower #305

In this issue: The math of investing moontower as a “bridge” Friends, The money sections…

5 days ago

the moontower bridge

I sent this to our moontower.ai list this week: If you run a trading or…

5 days ago

links between options and event prediction markets

Oil vols and calls skews were up a lot this week as the expectation of…

2 weeks ago