Najarian Brothers Book Follow The Smart Money

Insider trading is the trading of a company's stock or other securities based on material, non-public information about the company.

The clearest example is a CEO or CFO who knows about a quarterly earnings report before the market. Using that knowledge—good or bad—they place a trade to buy or sell stock in advance of the market learning the same information. Or they could even tell a friend or family member about the information, which the friend or family member then uses to profit.

To be clear, insider trading is ILLEGAL.

But often enough, the waves these insiders create are visible to those who know where to look. And that's what we attempt to do when following the smart money into trades.

Trading off the unusual options activity created by insiders is perfectly legal. That's because when someone places a trade in the options market, the trade is visible to everyone via a public feed. Information such as the number of contracts purchased, the price they paid, and the time in which they placed the trade are all available to us on the options chain.

And when information is public, it's not "inside" information.

The reason this is perfectly legal is because at the end of the day, following unusual options activity is taking risk. You might be able to apply public information better than others, but you don't know anything that others don't. And you don't have the obligation to keep any of that information secret.

Curious how Market Rebellion uses unusual order flow to tilt the odds in our favor and follow those who may have better information than we do? Learn more here: Is There a Legal Way to Trade on Inside Information?