A Foreword

While this piece is an op-ed, the things written herein ought to be interpreted as a lack of opinion.

That is to say:  these are not opinions, only attempts to understand data and what is going on within options flow of a particular company, nothing more.  

And, of course, these views do not necessarily reflect the opinions of Unusual Whales, Inc.

Sometimes things in the options market do not make sense.

It is our job to report on noteworthy or unusual options activity; however, this includes options activity that might be considered nominal today--or as anticipated since the advent of increased options trading activity this past decade.

We regularly report on noteworthy activities in the options market that are anticipated or expected, such as traders of all sizes making bets and rolling positions--and while these trades are considered significant, noteworthy, or even somewhat unusual, these trades are not necessarily coming ahead of any emergent catalyst or news story, and there is no misunderstanding as to why the positions were taken.

Sometimes, of course, there are trades taken that are quite unusual, without a clear explanation until some revealed catalyst.  And we report on those, too.

Our job in this report is to report on neither of these things, and instead to ask a question:

Why are deep in the money call contracts being bought to open by floor traders in Bakkt Holdings, Inc.?

And as you read this report, if you think you might have answers, do reach out to us, perhaps on the Unusual Whales Discord.

A History of Bakkt Holdings, Inc. (BKKT)

Intercontinental Exchange Holdings, Inc. (NYSE: ICE) first announced their own digital asset custodian service, Bakkt, in 2018.

ICE’s CEO is Jeffrey Sprecher, who is also the chairman of the New York Stock Exchange.

In early 2021, Bakkt announced its intention to go public through the SPAC VPC Impact Acquisition Holdings (NASDAQ: VIH).

While this is not to be misinterpreted, these SEC filings filed on July 19th, 2021 reveal ownership of BKKT.

Of note, Sprecher is married to Kelly Loeffler, who was Bakkt’s first CEO.  Kelly Loeffler left Bakkt to become a US Senator in 2020 following Senator Johnny Isakson’s retirement.

Again, not to be misinterpreted, Kenneth Griffin of Citadel LLC donated $2 million to a super PAC that exclusively supported Senator Loeffler’s 2020 election campaign.

Today, Bakkt Holdings, Inc. trades among the underlying components of the NYSE, and began trading at $9.41 on October 18th, 2021.  It traded around that price until October 25th, 2021, when it climbed to $13.86.  On November 1st it saw a high of $50.80, and as of November 12th, 2021, Bakkt closed at $24.27.

Looking Back on Noteworthy Options Activity

On October 26th, 2021, Bakkt Holdings, Inc. opened at $36.20.

That day, a Twitter user reported on the unusual options activity.

They were specifically captivated by the $15,800,000 in premium sold on the $4 strike call option dated for December 17th, 2021:

The $4 strike call option was not the only unusual activity in the $BKKT chains, as $7,100,000 in premium was traded on the $9 strike call option, traded close to the ask, dated for November 19th, 2021, the closest expiration at the time of entry.

Furthermore, the $9 strike call option was significantly in the money, as $BKKT was trading at approximately $23.17 at the time.

That day, visualized above, 65.1% of betting was in bearish premiums, with 66.5% bid-side, and 96.2% in call premium.  

The most popular chains were shorter-dated, including the November 19th, 2021 chain, and of deeper in the money strikes, such as the $11 strike, with significant bearish betting across all strikes and expirations.

On October 27th, 2021, Bakkt opened at $21.17.

Dark Pool Activity from October 25th to October 29th, 2021

There was dark pool activity in Bakkt from October 25th to October 29th, 2021, around the times of the aforementioned unusual options activity.

However, it must be stated that while these are consistent dark pool movements, these bets are not necessarily noteworthy or significant outside of the movements of premium, which in order to benefit the liquidity of the stock markets would be anticipated, given the leverage garnered from the call options reported above.

Following Additional Unusual Activity

On November 1st, 2021, Bakkt Holdings, Inc. opened at $39.68, and that day that same Twitter user reported on additional unusual activity:

“$45C BTO for 17-Dec. Ahead of ER. Flow is 66.67% bullish. Noteworthy trades attached. $1K+ prem. bets looking for $35 spot. $30K+ want $22.5. Both looking sooner than later expirations. Anyone have short interest?”

As compared to the October 26th options order flow reviewed above, the flow had switched to bullish, and significantly so.  77.7% of premiums at these levels were bullish, 73.3% in ask-side orders, 86.5% in calls.  

The most popular chains were now comprised of the December 17th, 2021 dates, with the most popular strikes at $22, with nearly $500,000,000 in premiums traded.

On  November 1st, 2021, Bakkt closed at $36.23 after having reached a high of $50.80.  Then, on November 2nd, 2021, Bakkt opened at $36.80.

As would be tradition, the trend continued, with deep in the money floor trades coming through the options order flow.

As Bakkt was trading at or around $25.61 to $27.79 at the time of these orders, the $7.5, $14, $15 strike call options, etc., would be considered deeply in the money, and would be considered highly unusual given the sizes of their orders and premiums.

Deep In the Money Call Purchases

There are a wide variety of reasons as to why deep in the money calls would be purchased:

• “Contracts are bought, executed, and then bought again at the same quantity and strikes and executed again – thereby keeping OI unchanged but with two sets of orders for the same strike and quantity appearing on the order book.”
• Upcoming dividend dates in which market makers are looking “to capture as much of the dividend as possible.  Two market makers enter into an agreement to trade deep-in-the-money call options back and forth with each other on the day prior to the ex-dividend date.”
• An entity (singular or otherwise) looking to buy leveraged exposure to the company; however, these types of orders are rarely bought to open at the ask--especially in a liquid ticker where there is a relevant bid-ask spread.  (Thanks to the SqueezeMetric team for the idea!)

It cannot be clarified within the current set of data as to why these deep in the money purchases are being made.

What is known is that Bakkt’s open interest is not changing day over day exponentially, nor its call or put volume, outside of these (now nominal/anticipated) deep in the money purchases.

As seen, and expected, Bakkt’s open interest has climbed steadily, not exponentially, since its inception.  Open interest as of Friday, November 12th, 2021 was 548,692 contracts, its call volume 153,952, and its put volume 29,830.

As expected, on November 1st, with the reports of the unusual call activity, Bakkt’s call premiums soared to $777,607,352 traded that day; as of November 12th, 2021, its call premium traded was $127,857,464.  

Bakkt’s put premium traded has remained consistently in a range of approximately $13,000,000 to $41,000,000.  

Bakkt’s average 3-day call volume is 149,000 contracts traded; its average 7-day volume is 191,500 contracts.  Its put-call ratio as of November 12th was 0.19.

Bakkt Holdings, Inc. Earnings Report on November 12th, 2021

Bakkt was to report its third quarter earnings report on approximately November 12th, 2021.  The 8K report may be read here.

This press release here revealed that:

• “Net revenue increased 38% to $9.1 million, compared to $6.6 million in the third quarter of 2020, primarily due to higher customer activity in loyalty redemptions and the addition of a large financial institution on our loyalty platform”
• “Operating expense was $39.0 million, an increase of 60% compared to the third quarter of 2020, primarily due to investments in business growth and closing the transaction”
• “Net loss was $28.8 million, compared to a net loss of $18.0 million in the third quarter of 2020”
• “Adjusted EBITDA (non-GAAP) was a loss of $24.1 million compared to a loss of $12.3 million in the comparable year ago period”

The reported call activity in Bakkt is not explained away by this caliber of an earnings report; while there was significantly bullish betting, the increases in net revenue and Bakkt’s overall profitability did not cause Bakkt’s price to reach new all-time highs, for instance, the likes of which were seen on November 1st.  

The question remains:  why would there be these continuous and deeply in the money calls being purchased on Bakkt Holdings, Inc. throughout the day?

Dark Pool Activity from November 1st to November 12th, 2021

There was dark pool activity in Bakkt from November 1st to November 12th, 2021, just ahead of its earnings report.

As seen, compared to the previous half of dark pool data, there was no greater size than 100,000 units traded, and the premiums, while significant, were nominal compared to other dark pool flow movements in Bakkt.  It can be intuited, then, at least at a basic level, that there is not any tomfoolery going on within the dark pools, such as in previous cases.

With All This Unusual Activity... What are “Furus” on Social Media Saying?

"Furus", or "financial gurus", are folks on Twitter, reddit, and across other social media avenues who provide commentary, and as with just about everything else, Unusual Whales tracks them.

The user SpacDaddy had mentioned $BKKT 8 times on October 25th, 2021, with Mitch___Picks coming in second at 7 mentions.  Overall, $BKKT was mentioned 54 times that day, as its price closed at $30.60, and declined to $23.78 that day.

There was no other significant mentioning of Bakkt by “furus” until the 29th, when Bakkt had again rose in price, to $42.52, and then on the 1st, with Bakkt at $50.80.

Outside of these moments, Twitter and reddit chatter has been relatively quiet in regards to Bakkt, and seemingly no one other than the first mentioned Twitter user had observed the repeated the deep in the money call purchases.

Breakdowns of Options Activity from October 4th to November 4th, 2021

The images below break Bakkt’s options trading down as thoroughly as possible, to hopefully glean some insight into the peculiarity of these orders.  Their significance, as stated repeatedly throughout this report, is not yet ascertained, and feedback is welcomed.

Options Activity Broken Down by Number of Trades

The majority of trades, by sheer number of trades, happened by non-floor traders, particularly on the $25 strike call options.

Again, the majority of trades, by sheer number of trades, happened by non-floor traders, and this time particularly on the $22.5 strike call options.

The most popular expirations would be the November 19th, 2021 chains for both floor traders and all other traders, both for calls and puts.

Options Activity Broken Down by Net Premium

The charts below are visualized using net premiums.  Net premiums have been calculated by subtracting orders at the bid from orders at the ask.

This is not the typical format in which premiums are calculated (such as the bullish versus bearish calculations across the Unusual Whales tool).  This format was conducted to see if there were any insights into where traders were “exiting” premiums and then “entering” premiums.

This might be considered where the interesting data begins to reveal itself:  the $100,000,000 betting was transpiring on the $5 and $10 strike call options, by floor traders, and in immaculate ways.  The premiums here overshadow the other premiums in the non-floor traders' premium levels that their bar charts are downright negligible.

Again, as with the previous November 19th, 2021 expiration, there is a similar story here, except now the premiums would be less, as not as much betting was transpring on the December 17th expiration.  However, even still, the $10 strike call option was still the most significant, and again, floor traders were overshadowing the markets.

Floor traders were trading on the November 19th, 2021 expirations, and almost exclusively in calls.  The premium levels for other orders would be considered almost insignificant.

Options Activity Broken Down by Total Premium

The charts below are visualized using total premiums.  Total premiums are calculated by adding all premium traded, in a more typical fashion, such as the way in which premium totals are calculated (such as the bullish versus bearish calculations across the Unusual Whales tool).

Bullish premiums would be considered calls purchased at the ask and puts sold at the bid; bearish premiums are considered puts bought at the ask and calls sold at the bid.  

While this is not always the case, as sometimes traders can be filled at the bid, ask, or a middling price, for any position taken, when looking at analysis such as this it is hoped that any sigma is left on the wayside.  

Regardless of this, as visualized, betting did not truly begin in Bakkt until October 25th, reaching a peak on October 1st in bullish premium betting.

Options Activity Broken Down by Volume

The charts below reveal the options trading volumes in Bakkt Holdings, Inc.  As seen within them, even though the floor traders thus far have led in premium and capital traded, due to their significantly in the money betting, the volume still wins out by non-floor traders in every instance.

Conclusion

(or a lack thereof)

There are no conclusions, yet.  As stated previously, there can be a variety of reasons as to why deep in the money calls are being purchased.  If you have any insights whatsoever, make some noise over on the Unusual Whales Discord.  

We'll hear you--and we'll be glad to have the conversation.

Additional Resources

• https://alpineglobal.com/guiding-principles/
• https://www.linkedin.com/company/alpine-partners/
• https://www.glassdoor.com/Overview/Working-at-Alpine-Global-Management-EI_IE1284665.11,35.htm
• https://www.bloomberg.com/profile/company/1183031D:US
• https://www.salon.com/2020/12/17/this-hedge-fund-billionaire-is-a-huge-fan-of-sen-kelly-loeffler--but-why/
• https://www.sec.gov/Archives/edgar/data/1423053/000110465921093452/tm2122532d3_sc13g.htm

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Unusual Whales, Inc.