Holdings Watch: Closed positions for the week. We took on some new refiner positions and a service name during the week as well. The Holdings Wiki tab has been updated.

• Sold the FRO $50 Puts, down 63% and will likely re-position soon
• Sold the HK $35 September calls, up 24%.

HK’s CEO Floyd Wilson Selling Shares. Why I don’t think it is a sell signal but something to watch.

First, thoughts on insider transactions:

1. CEO’s and other executives sell their own stock for a variety of reasons: diversification and new or additional house being chief among them. Approaching retirement, illness, mistress, yachts, and approaching bad news for the stock fall further down the reason list.
2. CEO’s and other executives buy their own stock chiefly for two reasons: either they think it is going to go up or they want you to think it is going to go up.
3. In looking at insider selling key considerations I look at are as follows:
   1. How much was sold as a percentage of holdings. If they sell out, especially top management this is obviously a red flag. As a general rule, the larger the company, the more I get uncomfortable with large percentage transactions by top management but I don’t have a strict level since it depends on how people are paid (cash vs stock).
   2. What was paid for those shares or what level were they acquired at.
   3. Is the sale part of a planned diversification program or 10b5-1 program?
   4. Percentage of compensation from shares vs cash. If they are paid entirely in shares than you should expect to see more in share sales.
   5. Is there a continual outflow with no purchases or is the sale more one-time in nature.
   6. Is it just one member of management or is everyone jumping ship?
   7. What has the stock been doing and what is the current and long term business outlook?

Looking at Floyd’s Sale:

1. Reason for the sale - unknown so no help with #1 above.
2. How much was sold: 250,000 shares for proceeds of $8.9 mm. This does not appear to be part of a planned program sale.
3. How much does he still hold:  2.6 mm shares which at Friday’s close of $34.61 equals $90 million.
4. So he sold 9% of his holdings from the start to the end of last week.
5. Is there a pattern of selling? No, the last transaction was a purchase made back in March of 2007. He has not sold shares in the last 2 years.
6. How’s he get paid. $600,000 salary + $1 mm bonus last year plus 142,000 restricted shares and 53,000 stock options. So its a nice living but not world beater. His net worth would appear to be tied up in the shares.
7. What are the other members of management doing? Almost entirely buying shares.
8. As to what the stock has been doing, its off its recent highs with the group but by no means tanking and is up strong for the last 52 week period. The business outlook is strong and the stock stands at the forefront of a new large shale play that should help ensure double digit unit volume growth and a large prospect inventory for the next several years. In conclusion I’d bet he’s diversifying his holdings and I’d say he is still quite aligned with shareholders.
9. From a practical standpoint, the filings for sales from the 27th, 28th, and 29th hit the SEC website on the 29th and the market probably did not notice them so their may be a negative reaction when the market opens on Tuesday but I would think it would be relatively short lived.

The Wrap

Rig counts continue to blow out. Look for an updated natural gas procution summary in Tuesday post.