Open-Market vs. Derivative Transactions
By InsiderAlpha · Published
Written from SEC primary filings, with every rule cited inline. Editorial standards.
The single biggest source of confusion when reading a Form 4 is mistaking a routine compensation event for a conviction trade. The form's two tables - and the one-letter transaction codes - tell you which is which.
Table I - non-derivative securities
This is ordinary common stock. The transactions that matter most live here:
- P (open-market purchase) - the insider spent their own cash to buy shares on the market. This is the gold-standard bullish signal.
- S (open-market sale) - a sale of common stock; read it with the caveats in our insider-selling guide.
- A (award/grant) - stock handed over as compensation. No conviction signal - the insider didn't choose to buy.
Table II - derivative securities
Options, warrants, RSUs, and convertible instruments. The common codes:
- M (exercise/conversion) - converting options into shares. Often paired the same day with an S (sell to cover the strike price and taxes). An M+S combo is a mechanical compensation event, not a bearish sale.
- F - shares withheld to pay taxes or the exercise price; pure plumbing.
- A / D in Table II - derivative grants or dispositions.
The mental model
Ask one question: did the insider voluntarily spend money to increase their economic exposure? Only an open-market purchase (P) clears that bar unambiguously. Awards, exercises, and tax-withholding events are compensation mechanics that happen on a schedule the insider doesn't fully control.
How InsiderAlpha handles it
Our scoring isolates open-market P purchases, sizes them against the insider's role and pay, and discounts or ignores derivative and award activity - so the signal you see reflects conviction, not payroll.
Form 4 transaction codes in full → · See this week's open-market buys →
This article is informational and is not investment advice.