This article contains a lot of data and spreadsheet manipulation of that data. As always, I expect to know more about what I am writing about after reading the comments. Also as always, I expect to have my mistakes pointed out and corrected by you. I always make some.
Recent statements by Herb Greenberg of TheStreet.com and others have drawn negative inferences from Micron's recent insider transactions. In particular, Herb Greenberg pointed to sales of stock obtained from option exercises where the options were not expiring. This is normally significant, since the implication is that the insider is exercising the options early and giving up the advantage of a free ride, because he or she thinks that the stock price will be lower for the remaining option exercise period.
I have a great deal of respect for Herb Greenberg and his opinions. Although Herb is correct that some exercises were early, there is more to the story. This article is intended to provide you with enough detail so that you can make up your own mind.
I track insider trading on every stock I own. I track it frequently, though not quite daily. That keeps me pretty much right up to date, since the form reporting any reportable transaction must be received by the SEC before the end of the second business day after the transaction.
I have uploaded part of the spreadsheet I use to track Micron insider trades here. It is too large to put into the rest of this article. You are free to download it and use it for your own purposes. It covers all insider trades from January 1 of this year, a total of 34 trades over about the last three months.
Here is an abbreviated version of the (already abbreviated) spreadsheet.
As you can see from the spreadsheet, I label each trade with a number from 0 to 10 to indicate the significance of the trade. My formula for computing the significance of the trade takes into account:
1. Who the insider is. The CEO's trade is more significant to me than the VP of Asian Marketing's would be.
2. The size of the trade. A sale of 250,000 shares is more significant to me than ta sale of 20,000 shares would be.
3. The relationship of the size of the trade to the total holdings of the insider. A sale of 70,000 shares is more significant to me if it's 90% of the insider's holdings than if it's 10% of those holdings.
4. Whether the trade is pursuant to a filed trading plan or not. A sale the insider pretty much has to make or blow his filed trading plan is less significant compared to a purely voluntary sale.
5. Whether the trade is made to pay the taxes due from the option exercise or not. A sale the insider makes to pay the taxes due on the option exercise is less significant compared to a sale made to put money in the insider's bank account.
6. Whether the trade is made to pay the option exercise price or not. A sale the insider makes to pay the price due for the stock on the option exercise is less significant compared to a sale made to put money in the insider's bank account.
7. Whether the trade represents an accumulation rather than a sale. There are many reasons for an insider to sell stock but only one that I can think of to buy it.
The weight I give to each factor stems from my own statistical sampling over the years, indicating to me how important that factor is. It is not solely a mathematical formulation. Judgment is involved. Neither is the score purely a mathematical construct. I exercise my own judgment there also.
Also, I tend to discount one, or sometimes even two, negative insider trades in each three month period. I have found that there is almost always somebody who wants a new boat.
Here is a view of those trades which have a significance rating greater than 5 or are related to a trade with a significance rating greater than 5. There are 14 of them.
First, the negatives:
Shields is labeled significant because he sold such a high percentage of his holdings. Also, he exercised the options before they were expiring. Either he doesn't like the prospects or he is buying a new boat. But, in any event, he is the VP of WW Operations, so how much can he know anyway.
Adams is labeled significant because he is the president and he sold a substantial percentage of his holdings. But his options were expiring, so he had to either cash in on them or pay out a lot of cash to sit on them.
Foster is labeled significant because he is the CFO and can be expected to know everything financial about the company and because he sold a substantial percentage of his holdings. Also, he exercised the options before they were expiring.
Now, the positives:
Poppen is labeled significant for a lot of reasons. He is the General Counsel and can be expected to be involved in, or at least know about, anything significant which is going on. This transaction is significant, because Mr. Poppen is accumulating stock rather than selling it off and paying the cash for taxes, exercise price out of his own pocket. True, eight and nine days earlier he exercised an option and sold all the stock. I wonder what happened in that 8-9 days that got him to change his mind?
Durcan is labeled significant for a lot of reasons. He is the CEO and can be expected to know everything about anything significant going on. This transaction is significant, because Mr. Durcan is accumulating stock rather than selling it off. He is selling only enough to pay the exercise price of the option, and the taxes on the exercise of the option add the rest to his position. Also, he is exercising these options before they were expiring. I wonder why he would do that?
So it is quite true as Herb Greenberg says that insiders are exercising options earlier than their expiration dates. The VP of WW Operations and the CFO did that and sold the stock. The implication is negative.
On the other hand, the CEO did that and kept the stock except for the amount necessary to pay the purchase price and taxes. That implication is positive.
I see the results as more positive than negative, but not by much. More importantly, I see the results as being strange. I cannot remember having seen so many early exercises before. I certainly do not remember ever before seeing an early exercise by someone who was going to keep the stock. Why do that?
As always, your mileage may vary.
Disclosure: I am long MU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I have recently added to my already quite large position and I may add more in the next few days.