I'm torn. I've hit a moral crossroads.
Maybe it's an ethical one. I suppose I should've taken a freshman philosophy class, so I understood exactly where my dilemma rests, but no matter. It's not the semantics that matter here, but the underlying issue.
The market, at least certain portions of the market, aren't supposed to work like this. There's a clear targeting, gaming, manipulation, or whatever you want to call it, happening on a daily basis. Now, before you think I'm a grumpy old man telling you to get off my lawn, I'm not telling you to ignore it or the end is coming. This is simply an observation, but therein lies the dilemma.
I see it. Clear as day. I can profit from it, especially if I want to drag myself out of bed before the rooster crows. But it's not the getting up early where I have issues. It's the "how."
Contributors to Real Money don't sign anything like a Hippocratic Oath nor do we have a fiduciary responsibility to our readers, but I can tell you that we carry ourselves in such a manner. The goal here is to explain approaches, ideas, and hopefully help folks make money or avoid lose money.
Unfortunately, the way I see the most money being made right now involves throwing out virtually everything logical we've ever learned about the market.
Due diligence matters little. Risk management is for the birds. It is even a step beyond momentum trading, something I do often. Instead, we are deep into the trash of companies -- some of which probably shouldn't be public -- which are seeing their share price double, triple, or reach valuations that are mind-boggling.
The approach that is paying off these days is to get access to the market in the wee hours of the morning, the 4 a.m. to 7 a.m. timeframe. A small group of traders will identify a few low float names with some news or thesis around them. From there, all they need to go if get some volume and price movement going.
I could take a deeper look at identifying these names and trading them, but my issue with doing that is it's going to form bad habits. It's going to create bagholders. It's going to ruin not only traders but people.
I'm all for reaching into the garbage and trading a pile of trash here and there, but when all you trade is trash, you lose your ability to analyze a company, its long-term value, your own risk management and more.
That's not the knowledge I wish to share, or rather curse people with, in this environment. The money is coming too easy. The moves are happening too quickly. Valuations are rising too rapidly. And the best trading, the best approach to making huge gains in this market, is one I watched wipe out friends and family around the dot-com boom to bust.
Maybe my gut is off here, but I feel like we are headed for a very ugly day, very, very soon. A market this "easy," and it has been easy, doesn't exist in perpetuity.
I'm probably early but I moved into a very heavy cash position Monday. From this point, I'll be using calls, call spreads, or call combinations for my upside exposure in order to define my downside risk.
Tim Collins provides options trade ideas each day on Real Money Pro, our sister site for active traders. Click here to learn more and get great columns, commentary and trade ideas from Tim Collins, Mark Sebastian, Paul Price, Doug Kass, and others.