Benzinga | Sep 18, 2020 11:14AM EDT

Insider Buys Chatham Lodging's Shares

Shares of Chatham Lodging Inc (NYSE:CLDT) rose by 6.5% from the previous closing price. A Form 4 filing filed with the SEC on Friday, September 18 showed that Chairman and Fisher Jeffrey H bought 25,000 shares at an average price of $7.95. The transaction moved the executive's stake in Chatham Lodging Inc. to 200,000 shares.

The Importance of Insider Transactions

While transactions from an insider shouldn't be used as the sole item to make an investment or trading decision, an insider buying or selling stock in their company can be a good added factor that leads to more conviction in a decision.

When an insider buys stock after an important sell off, that can indicate the insider's faith in the success of the organization. Henceforth, if the stock is bought at new highs, it might be because the insider feels that the stock is not overvalued. Insiders who sell stock at new lows could be anticipating some capitulation moment. If the insider sells at new highs, it could point to the intention to "take some profit" and "lock in a gain."

Transaction Codes To Focus On

Investors prefer focusing on transactions which take place in the open market, indicated in the Form 4 with codes P for purchase and S for sale. If the transaction was an open-market transaction, that means that the insider made a concious decision for the company's stock moving forward.

Transaction codes other than P or S are often viewed with less conviction as they are often not tied to a decision by the exec. As an example, transaction code C indicates the conversion of an option. Transaction code A indicates the insider may have been forced to sell shares in order to receive compensation the exec was promised upon being hired by a company.