Trading the Transformed Nasdaq 100

In late 1999, America had fallen in love with the technology sector. You could overhear investors at the airport, in restaurants, or at the gym talking about popular stocks like Oracle (ORCL Quote), Intel (INTC Quote) and Microsoft (MSFT Quote). At the same time, the American Stock Exchange launched trading in the Nasdaq 100 Trust (QQQ Quote), an option that quickly became among the most actively traded contracts.

The QQQ became a means of participating in the entire technology sector. Today, while you seldom hear people boast of owning the big major tech names, QQQ options are still among the most actively traded. However, the nature of the contract has changed dramatically over the past three-and-a-half years, and it's no longer a pure play on technology.

The QQQ is actually a tracking stock designed to equal 1/40th of the value of the Nasdaq 100 Index. For instance, on Feb. 27, when the Nasdaq 100 was quoted at 1000, the QQQ was trading for $25, or 1/40th of 1000. The QQQ is really a fund that allows investors to buy all the stocks in the Nasdaq 100 in just one share. ...