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3 Contrarian Trades for a Market That Looks Too HotWritten by Bridget Bennett on August 25, 2026 
Key Points
- With stocks near record highs and few beaten-down opportunities left, options trader Jeff Clark has adopted a more defensive, cash-heavy market stance.
- Clark favors buying call options instead of shares to limit capital at risk, highlighting trades in Treasury bonds, natural gas and semiconductors.
- He specifically points to TLT, UNG and SMH as contrarian and catch-up plays, contrasting this approach with his earlier strategy of selling puts on oversold stocks.
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Being a contrarian investor is a lot easier when there are plenty of beaten-down stocks to choose from. With major indexes near all-time highs and the rally expanding into more corners of the market, TradeSmith’s Jeff Clark says those opportunities have become harder to find. That has pushed the longtime options trader into a more defensive position as the market heads toward September and October, historically challenging months for stocks. “There’s not a whole lot of things that are unloved right now,” Clark said. That does not mean Clark expects the bull market to end. In fact, he believes stocks could finish the year higher. But between now and roughly the middle of October, he sees an increasingly unfavorable risk-reward equation. Clark pointed to stretched valuations, exceptionally bullish investor sentiment and overbought conditions across multiple sectors. With the S&P 500 near 7,700, he sees perhaps a few hundred points of additional upside—but potentially considerably more downside if the market finally pulls back. For Clark, that is not an attractive trade. He would rather hold more cash and wait for the S&P 500 to retreat toward the 7,200-to-7,300 area, where he believes the risk-reward picture would become much more compelling.
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Using Options to Reduce the Capital at RiskClark’s defensive posture does not mean avoiding the market completely. Instead, he is changing how he gets exposure. Options have a reputation for being speculative, but Clark argues that much of that risk comes from how investors use them. His approach is to put substantially less capital into a trade by purchasing call options rather than buying 100 shares of an expensive stock or ETF. The key, he says, is not using the lower cost of options as an excuse to dramatically increase the size of a position. Take the VanEck Semiconductor ETF (NASDAQ: SMH). Clark illustrated how buying 100 shares could require more than $50,000. An investor willing to tolerate a 10% decline could therefore have several thousand dollars at risk. Instead, Clark would consider committing only a fraction of that amount to call options. The full premium paid for those calls could still be lost if the trade goes wrong, but the remaining capital stays out of harm’s way. That distinction is critical to his strategy. The goal is not to take the $50,000 that could have been invested in shares and put all $50,000 into options. It is to use a much smaller amount to maintain upside exposure while defining the maximum loss in advance. And with fewer deeply oversold stocks available today, Clark sees three areas where that approach could make sense. Contrarian Trade No. 1: Long-Term Treasury BondsClark’s first idea may be one of the least-loved areas of the market: long-term Treasury bonds. The iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) had been trading near its yearly lows, with yields elevated and investors focused on the enormous federal debt load. To Clark, that pessimism is exactly what makes the setup interesting. He sees TLT as oversold, extended below several moving averages and surrounded by poor sentiment. Clark also believes recent comments and actions involving the Treasury market could help establish a bottom in long-duration bonds. His expectation is for Treasury bond prices to move higher between now and October. At the time of the interview, TLT was trading near $82. Clark said an advance toward roughly $86 by October would represent a reasonable upside target. Buying 100 shares at $82 would require about $8,200. A move to $86 would generate roughly $400 in gains. Clark’s alternative was an October $83 call trading near $1, or about $100 per contract. Four contracts would require approximately $400. If TLT reached $86 at expiration, those calls would have about $3 each in intrinsic value. The position would be worth roughly $1,200, compared with the original $400 cost. The more important part of the example is the downside: rather than placing more than $8,000 into the ETF, only the $400 option premium is exposed. For Clark, that is what good options trading should accomplish—less capital at risk with meaningful participation if the thesis is correct.
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Contrarian Trade No. 2: Natural GasThe second setup goes straight back to Clark’s favorite principle: buy something when nobody wants it. Natural gas fits that description in August. Clark highlighted natural gas producers, including EQT Corporation (NYSE: EQT), Antero Resources (NYSE: AR) and Comstock Resources (NYSE: CRK) as names that have been relatively weak compared with other areas of the market. But his broader way to play the seasonal setup is the United States Natural Gas Fund (NYSEARCA: UNG). Natural gas can be notoriously difficult to trade, but Clark sees a seasonal pattern worth watching. In recent years, natural gas prices have frequently established important lows during August before strengthening into the fall. The logic is straightforward. When temperatures are high and home heating is nowhere near the front of investors’ minds, natural gas can fall out of favor. By the time cold-weather demand becomes an obvious story, markets may already have begun pricing it in. “You want to buy things when they’re out of favor,” Clark said. With UNG near $10 in his example, Clark sees the possibility of a move toward $12 if natural gas experiences even a modest seasonal rally. Once again, he prefers calls to a large outright position. He pointed to October $10 calls trading around 60 cents at the time of the interview. If UNG reached $12 near expiration, the value of those calls could increase substantially. This is classic contrarian investing: finding an asset investors have largely ignored, identifying a potential catalyst for sentiment to change and defining the amount of capital at risk before entering the trade. Contrarian Trade No. 3: Semiconductors Playing Catch-UpClark’s third idea comes with an important condition. If investors believe the broader market can continue marching higher, semiconductor stocks may need to start participating. The semiconductor sector had been one of the market’s biggest leadership groups earlier in the year before losing momentum. While many other stocks and indexes pushed toward new highs, Clark noted that SMH remains well below its previous peak. That divergence creates a possible catch-up trade. NVIDIA Corporation (NASDAQ: NVDA) earnings could also become an important catalyst for the group. If enthusiasm builds around the report and the broader rally remains intact, Clark believes semiconductors could regain momentum. But he does not consider the trade risk-free. A semiconductor ETF can move sharply in either direction, and Clark sees potentially similar percentages of upside and downside in the underlying fund. That makes buying the ETF outright less attractive to him. Calls change that equation. Rather than committing tens of thousands of dollars to 100 shares of SMH, Clark would consider one, two or perhaps three calls. The options could lose 100% of the premium paid, but that premium represents a much smaller pool of capital than an equivalent stock position. The point, once again, is not maximum leverage. It is maximum control over the amount that can be lost. The Strategy Has to Change With the MarketThe approach is notably different from the strategy Clark discussed earlier this year. In May, he highlighted Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS), Figma, Inc. (NYSE: FIG) and SoundHound AI, Inc. (NASDAQ: SOUN) as beaten-down opportunities and discussed selling uncovered puts as a way to potentially generate premium while agreeing to buy shares at lower prices. Those setups made sense to Clark because the stocks were already deeply out of favor. Selling an uncovered put creates an obligation to purchase shares at the strike price if the option is assigned. Clark’s argument was that investors could collect premium while waiting for a price at which they already wanted to own the stock. Today’s market looks very different. With fewer oversold stocks available, Clark does not see the same abundance of opportunities to sell puts on beaten-down names. For bullish trades, he is more interested in using calls to define risk while keeping most capital on the sidelines. It is a reminder that investing strategies cannot operate on autopilot. A setup that makes sense when stocks are oversold may be far less attractive after a broad rally. And when volatility is elevated, position sizing can matter as much as getting the market direction right. Clark has watched individual stocks, Bitcoin, precious metals, and other assets make increasingly large moves over short periods. That volatility can create opportunity—but only if investors avoid risking more than they can afford to lose on any single idea. For now, that means being selective. Long-term Treasury bonds and natural gas offer the kind of unpopular, oversold setups Clark traditionally favors. Semiconductors represent a different type of opportunity: a lagging sector that could play catch-up if the bull market continues. But with the broader market near record highs, the common thread across all three ideas is not simply finding more upside. It is finding a way to pursue that upside while keeping downside under control. Read this article online › Read More
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