In the movie Trading Places, the evil commodity traders who bet on
the futures of Dan Akroyd and Eddie Murphy looked with dismay when their grain
longs were wiped out thanks to some bad inside information.
Could investors use inside information to avoid losing money in the stock
market? We think they can, but from trading based on legal insider information
conveyed by the best measure of bullish or bearishness — insider buying and
The following 3 leading stocks should be watched closely because of heavy
insider selling. Investors in these names may want to invest some profit into
longer dated put options against their stocks as an insurance policy. This
strategy delivers around twenty five percent of the gain of a “naked” long
position while allowing for only a 7% or so maximum loss if this options hedging
strategy is done correctly. We think a married put strategy makes sense, but
would suggest any directional bet on the following 3 names should be bearish,
Salesforce.com (CRM) — We recently
shorted CRM via bear call spreads because the stock is trading for a huge
premium to our estimate of discounted future free cash flows. We sold the $155
April CRM calls and purchased the April $165 calls for a bear call spread trade.
The stock is currently trading for around $151 and change so we have a nice
cushion should CRM keep rising in the short term.