Searching for Pure Technology Plays

Today's most actively traded options contract is the Nasdaq 100 Unit Trust (QQQ Quote). Many investors consider the QQQ as a play on the technology sector. However, the Nasdaq 100 includes not only technology stocks, but also a number of biotech, retail and other nontech sectors. Although a large number of tech companies are in the Nasdaq 100, it isn't really a pure play on tech. Fortunately, strategists seeking to place trades strictly on the tech sector do have a few options available.

Options on the QQQ, also known as the Qs, made their debut in 1999. At that time, technology was America's favorite sector, and companies like Microsoft (MSFT Quote), Intel (INTC Quote) and Cisco (CSCO Quote) became the most actively traded stocks. The QQQ became a benchmark for the performance of these large-cap tech stocks. Investors could buy and sell QQQ shares like stocks, but instead of representing ownership in just one company, the Qs offered investors a means of owning 100 different stocks in just one share.

The value of the QQQ is derived from the Nasdaq 100 index. To be precise, it is equal to 1/40 of the NDX. The Nasdaq 100, in turn, represents the 100 largest nonfinancial companies trading on the Nasdaq stock market. Therefore, when QQQ options started trading in 1999, large-cap tech companies like Oracle (ORCL Quote), Microsoft, Intel and Cisco dominated the index.

Today, however, the Nasdaq 100 has a different look. Since the collapse of the technology sector over the past three years, less glamorous names like Starbucks (SBUX Quote), Bed Bath & Beyond (BBBY Quote) and Paychex (PAYX Quote) have replaced many of the large technology companies in the Nasdaq 100. Simply put, during the past three years, the nature of the QQQ has changed: It is no longer an index dominated by large technology companies. ...