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When Considering Penny Stocks or Any Other Public Stock Option-Related Trades are Not Overly Significant

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When an insider does exercise options on his penny stocks, he or she sometimes exercises and sells several lots within time frame. One of the reasons is the insider may not have enough money to exercise all the options at once.
 
If an insider's share are trading in the open market for $15 (obviously not penny stocks) and the insider has options to buy 20,000 shares of stock from the company for $10, he or she has $100,000 risk-free capital gain coming out but must still pay up $200,000 to the company to get that profit. That's a fair amount of money to have on hand. The insider may choose to exercise only 5,000 options at first, and then use the profit from the sale to exercise more options and continue doing that until all the options have been cashed in.
 
Exercising options piecemeal like this can make for a pretty messy insider history for penny stocks or any stock with lots of selling. It would be wrong if you had viewed this as a negative indicator of the stock's future prospects. An exception is when an insider's options are getting ready to expire, the insiders might exercise them but not sell the stock immediately, and this is a valid positive signal.
Do you know you can use the filtering feature in Research Tools to remove all option related trade?
 

 

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