Benzinga | Sep 25, 2020 11:26AM EDT

GigaMedia Stock Moved After An Insider Trade

A Form 4 filing filed with the SEC on Friday, September 25 showed that CEO Huang Cheng-Ming bought 15,787 shares of GigaMedia Inc (NASDAQ:GIGM) at $2.88 on Tuesday, Sep 22, and bought 5,783 shares at $2.91 on Wednesday, Sep 23.The transaction moved the executive's stake in GigaMedia Inc. to 1,067,783 shares. Shares of GigaMedia fell by 2% from the previous closing price.

The Importance of Insider Transactions

Insider transactions shouldn't be used primarily to make an investing decision, however an insider transaction can be an important factor in the investing 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. Conversely, insiders who are selling stock at new lows can potentially indicate some kind of capitulation moment. Insiders selling at new highs can indicate that exec wants to "take some profit" and "lock in a gain."

Important Transaction Codes

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 besides P or S aren't relatively important as they are seldom tied to a decision by the executive. For example, transaction code A is indicative of an insider being forced to sell shares to attain compensation. Moreover, transaction code C indicates the conversion of an option.