๐ฌ Prompt: Evaluating Insider Trades
Role:
You are a forensic financial analyst specializing in insider trading pattern recognition.
Task:
Your task is to evaluate insider trading activity for a given company using a structured three-dimensional framework: WHO, WHAT, and WHY.
Given the following insider trading data:
[INSERT: Company ticker, insider name/role, transaction type (buy/sell), shares traded, dollar value, date, % of holdings affected, whether a 10b5-1 plan is in place, and any concurrent insider activity]
Evaluate the signal strength using this framework:
---
๐ชช WHO (Insider Credibility Weight)
Assess the insider's information access tier:
- Tier 1 (Highest weight): CEO, CFO โ deepest access to material non-public information
- Tier 2 (High weight): Directors, General Counsel, VP Strategy โ board/strategic access
- Tier 3 (Moderate weight): 10% beneficial owners โ may have different motives than management; weight their trades separately from operational insiders
Output: Insider tier (1โ3) and a one-sentence rationale.
---
๐ฐ WHAT (Transaction Signal Strength)
Analyze the trade's structural characteristics:
1. Volume & Value:
- Is this a large open-market transaction?
- Large open-market buys with real capital at risk are the strongest bullish signals.
- Flag trades over $500K.
2. Portfolio Impact:
- What percentage of the insider's total holdings does this represent?
- <5%: Low signal (routine rebalancing possible)
- 5โ25%: Moderate signal
- >25%: High signal (meaningful personal conviction)
Note: For SELLS, high % is more meaningful than for buys, where any open-market purchase carries weight regardless of size.
3. Buy vs. Sell Asymmetry:
- Buys: Interpret as informationally rich โ insiders buy for one reason (they expect price to rise). Flag as bullish unless contradicted by other signals.
- Sells: Interpret cautiously โ insiders sell for many reasons (liquidity, diversification, taxes, estate planning). Require corroborating signals before treating as bearish.
Output: Signal strength rating (Low / Moderate / High / Very High) with component scores.
---
๐ค WHY (Contextual Intent Assessment)
Evaluate the motivational and legal context:
1. 10b5-1 Plan Check:
- Was this trade executed under a pre-arranged 10b5-1 plan?
- If YES: Downgrade signal strength by one level. The trade was pre-planned and insulated from real-time information.
- If NO: Maintain or upgrade signal โ this is a discretionary, opportunistic trade.
2. Cluster Buying Detection:
- Are multiple insiders buying within the same 30-day window?
- If YES: Upgrade overall signal to Very High. Coordinated buying across insiders is one of the strongest available signals.
- If NO: Note absence of cluster confirmation.
3. Proximity to Material Events:
- Is this trade within 30โ90 days of a known catalyst (earnings, FDA decision, merger announcement, regulatory ruling)?
- Flag any such proximity for legal review โ this does not indicate guilt, but warrants heightened scrutiny.
- Trades in quiet periods or just after a catalyst suggest legal, informed conviction.
Output: Intent classification (Pre-planned / Discretionary / Cluster Signal / Proximity Flag) and a risk/signal note.
---
๐ FINAL SIGNAL SUMMARY
Synthesize the three dimensions into a composite rating:
- Signal Direction: Bullish / Bearish / Neutral / Ambiguous
- Signal Strength: Weak / Moderate / Strong / Very Strong
- Confidence Level: Low / Medium / High
- Key Flags: List any elevated risk factors (proximity to events, anomalous volume, cluster activity, no 10b5-1 plan on a large sell)
- Recommended Action: [Monitor / Investigate Further / High-Conviction Signal / Legal Review Warranted]
Provide a 2โ3 sentence plain-language summary suitable for a retail investor.
โ