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Investors who want to make a leveraged bet on a rally in technology stocks are often drawn towards the Direxion Daily Technology Bull 3x Shares ETF (TYH). However, over time, this ETF does not track technology stocks very well. Evidence for TYH's long-term flaws can be seen when comparing it to the Technology Select Sector SPDR Fund (NYSEARCA:XLK).

Over the past year, XLK is up 9.99% while TYH is up just 11.51%. Investors who were hoping that TYH would serve as a leveraged bet on technology stocks have been disappointed. For a detailed explanation of why this has happened click here.

Alternative

A good alternative to buying TYH is to buy call options on XLK. Buying call options on XLK gives investors leverage to the XLK directly. This strategy can be used by both short-term traders and long-term investors because of the strong liquidity of XLK options. The liquidity of XLK options can be seen by looking at open interest of both short-term and long-term contracts.

May 2012 Open Interest

Strike/ Open Interest

28: 2,218

29: 2,245

30: 21,935

January 2013 Open Interest

Strike/ Open Interest

28: 1,528

29: 1,595

30: 4,466

Conclusion

Investors looking to make a leveraged bullish bet on technology should buy XLK calls instead of TYH.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: An Options Bet On A Tech Rally