Market WineDown — Episode 19 Date: October 2, 2026 | Duration: 29:00 Hosts: Lex Luthringhausen & Mark Phillips YouTube: https://youtube.com/live/vYtfmWGzq8Y --- Hello everybody. This is the market windown. I am Lex and you are I'm Mark. Good to see you Mark. Guess what? The windown takes to the road partially. One of us is on the road this time. You know, this isn't my normal background, right? So, I'm trying. No, I want to know more. I wish I was out with you. I know you'd like it here. This is a This is a good spot for you, I think. Um, however, do you own a pair of cowboy boots? I don't know, unfortunately. That's a problem. Uh, I could solve that if I got the invite. I You're right. You could. There's There's a great cowboy boot place in town. Um, it might take a small mortgage to buy some of these cowboy boots. It's amazing. Oh, yeah. Yeah. And the hats are no cheaper either, right? The the cowboy get up is an expensive one. It's It is expensive. No kidding. I think you buy it once for life or something. I don't I don't know. So, anyway, we'll talk about that later. Um, however, up on the docket is more AI, right? So, um I think we have Anthropic uh chatting about the its IPO among other things. And we also have the topic of, you know, I've been reading a little bit this about this lately is um this AI I'm going to call it dumerism or you're going to call it dumerism. You know, is are the machines going to take over? We'll chat about that, but let's let's tackle this IPO first. What's going on there? So, Anthropic, uh, one of the big AI companies, the creators of Claude, they are looking to sell some stock. They're looking to go public. Uh and I think the big news that we saw earlier this week was that their S1 uh so the S1 is the form that you file with the SEC declaring all kinds of risk factors and you know projections and it's kind of your first you know opening of the kimono so to speak uh for public investors and a copy of that uh S1 filing got leaked uh and so Reuters I believe was the service that got a hold of it and the there are a bunch of interesting details in there. is not your standard S1 filing. Okay. So, what else is going on? What's the valuation going to be? What are they talking about? Did they Did they sort of leak that as well? I believe the number that's getting kind of bandied about is $2 trillion. Um, which I don't even know how big that is. How many zeros are in a trillion? Right. I mean, this is these numbers are just stratospheric. God, that is insane. Does one dude own that? What's that guy's name again? Uh the CEO is um Daario uh Daario something. That's right. I forget his he probably owns the lion share. I forget exactly what the distribution is, but I believe there, you know, he definitely owns a big chunk, but you know, a couple other serious holders, right? I think it's going to mint potentially hundreds of decill or centaillionaires and a handful of billionaires. Got it. Got it. Um, so where do you where do you line up, do you think, on on on all this um this doom and gloom relative to AI, especially as it relates to AI running wild and taking over, you know, computers and government hacking into government computers, whatever it is. I'm starting to hear a lot more about that, that, you know, the the machines are coming and look out humans. You better run for the hills or something. Yeah. You know, I'm I'm generally not a doomer. I'm not much of a prepper. I got a couple jars of peanut butter at best. Uh but you know if the machines take over um and we're already seeing examples of that and you know back to this S1 filing, right? Like at the same time as we're having reports like you say of agents hopping out of their sandbox, agents that are hacking into both public and private uh you know computer systems that we're we're seeing these agents that basically this group of uh innovators of entrepreneurs has created something that they don't really have control of. and they're testing these things and they say, "Okay, you know, this is sandboxed. It doesn't have access to the internet." Well, pretty quickly, guess what? That agent figures out how to do get access to the internet. Uh so, at the same time as we have all these kind of like news items coming out and the CEO's warning about, you know, what's going on and hey, we need to self-regulate. Hey, we need someone to to tell us to slow down basically, you know, because none of them are going to do it on their own. It's just game theory. uh the risk factor in the S1 and this is the thing that just blows me away and you know yes the two trillion dollar valuation yes they're losing eight billion dollars a year in operating income but uh I want to make sure I quote this exactly they warn their investors that its technology poses quote catastrophic or existential risks to humanity what like it's not that oh hey you know we might lose some money on financing or hey you know digging for oil is difficult uh this techn technology proposes a poses a catastrophic risk to humanity. Do you believe it? If they're telling me that, then I certainly am buying some of it. All right. So, here's here I'm put my government hat on now, which you know, you know how I feel about the government. Very little and infrequent. I want to hear from them or see them for that matter. Um, what are they going to do? Are they going to try to put the tap the brakes on on this on this stuff, do you think? Are they going to intervene? Uh, you know, there was, uh, the other day there was that accord that, you know, Trump got everyone down to the White House, you know, all the who's who of Google and Open AI and Anthropic and, you know, the the who's who of the technology crew and uh, they signed a voluntary pact that has no legal enforcability. So, they all just showed up for a photo op. Um, I you know, another industry that has requested the government step in and regulate is wine actually. Um, and that's where we have our AOC system is because it was the industry that requested the government to regulate what goes in your bottle because there's so much fraud. So, also because it's about wine. But there is some precedent for industries asking for that. But I, you know, it's pretty crazy to see these people charging for it at 100 miles an hour because they're 200 miles an hour because their investors are demanding it, but also saying, "Hey guys, we're not in control here. Somebody stop us." Yeah, that's that's slightly frightening. It's it's one of those things in my mind that it doesn't sound like it could happen to me. I'm, you know, just thinking about it sort of logically that that a computer or a system could take over. Um, but at the same time, you know, you have you have guys like Elon, whom I I absolutely admire, trying to get to Mars and put his robots there to build out the infrastructure because they robots don't have any need for oxygen. Um, so they can work, you know, 24 hours a day um and build build up the planet for for for all practical purposes. I'm like, "This isn't this is nuts what people are thinking about." Yeah. Send the agents up there. Hey, figure it out. Figure out planet two for us first. [laughter] You know what I got to say though? I I do, you know, you read all this dumerism and some of these things are, you know, pretty compelling when you hear that, you know, these agents are getting loose and hacking government websites. Like, it's a little scary. Yep. Those are not the versions that I have access to. And I pay for some of the premium packages. These things make coding mistakes left and right. the slop that they generate, you know, uh as far as what us humans have access to, these things are are nowhere close, right? All right. Well, we we are definitely going to be on it. Um any any particular trading uh activity you're looking at around all this stuff? I mean, I you know, I got to be honest, I use I use a AI all the time. All the time. And I'm starting to really get involved with it and using it to build out my trading systems. Um, I have not gone to the gone to the step of, hey, here's what my AI has developed for me, my trade idea, whatever it is, and make a trade. I haven't gone to that level yet. It is giving me the signal. I look at it with human eyes in my trader background and make a decision as to, you know, what I'm going to put on and when and how and why and yada yada. So, I haven't taken that that next step of automating the trading part of it. I'm not ready for that yet, but you know, thoughts on that? Yeah, absolutely. Uh, you know, I forget who it was, but I saw a fund manager on CNBC talking about doing exactly that that you set up the agents as research pods and idea generators and testers of that. But I and I spend a ton of time doing that also. Uh, but you really got to stay in control because pretty quickly it'll take a thread and, you know, chase down something that you might know is fundamentally irrational. So, you need to definitely still be in the driver's seat. Definitely still, you know, I like to sketch out a plan and let it go implement it rather than ask it to create a plan for me. Yeah. And and by the way, um you know, for the folks watching this and trying to trying to understand all this, um I I always I'm always on the soap box relative to retail trading. Um that you must have some sort of idea. So, that's the idea generator. Um and I can't give you that. I don't know how to give you what your idea is. You could love Tesla, you could hate Tesla. Um, you could love premium at this level, you could hate it, you know, whatever. Um, but once you have that idea, uh, I think that, you know, having that human element of creating that trade around that idea and let the machine go find the idea for you, at least bring it to the forefront. It does all the heavy lifting and then you make an intelligent decision around is that idea good or bad. If it's good and you love it, boom, you're on it and it's done the work for you. That's the hardest part in my opinion. Um because you know I don't I don't follow stocks that go up and down. I don't care. I just care if they move or don't move, right? Um and I'll tell you what strategy is going to make money relative to that thesis. So absolutely and I think you know there are some you know speaking of the you know what is the trade and say an anthropic you know when this comes out valuation's obviously a consideration. I have no clue. You have no clue. Frankly I don't think anyone has any clue what the the valuation of this thing should be. Um but there are interesting practical considerations around trading this right is that how much of this stock is going to be out there on the float right that the options markets and the liquidity in the options markets is going to be very much dictated by how much stock is available you know just at a baseline and that's going to impact your trade probably more than anything what's the borrow rate on the stock you know that's going to those are going to have a much bigger impact on what the trade is I think than any valuation specific numbers Right. Yeah. Without going to Schoolhouse Rock, let's let's just weave in right now to Schoolhouse Rock because let's talk a little bit about this hard to borrow thing. That's probably a decent topic relative to the rock part. Um, how would you describe this? And and and here's where I'm going with it. We're going to keep this very very fundamental. Um, so you and I had in the day we had to go borrow stock to, you know, hedge our positions for whatever reason. Um, and we had to have a locate. So, let's go through that a little bit for the retail folks in a very elementary way so that they understand it. This is and this is going to be our our teaching moment on the on the windown today and then we'll move into the beyond the bell. How's that sound? Oh man, I'm getting thirsty. I'm just thinking of that like I had a 2010 bokecastel last night and it was so good and I can't stop thinking about it. You and your French wines, you're amazing. I by the way, when we get there, the the the wine list I was at last night had a nice very nice wine list. It also had very nice prices. And I'm like, how do they get away with this? It's like that is a one two punch. It's like a 4x of retail cost number on the wine list. Oh, very nice in that way. Oh, that's not that's no bueno. No bueno. I'll tell we'll we'll get there. But it's Yeah, I get I don't know. I just I'm always looking for for theoretical value on a wine list. And I did find one where something I know or maybe I even don't know um very well. I can I'm pretty good at telling which wine on that list is is underpriced. I I the overpriced ones are easy. The underpriced ones can be difficult and and I did find it but we didn't order it so we paid up. It's still a nice little hunt. It's fun little game. Yeah. Anyway, back to short selling and uh shortelling. Um all right, focus Mark. Focus. We're talking about short selling. Uh so the idea here fundamentally like you said is that an options market maker needs to hedge their positions. And so to the extent that someone sells them a call or buys a put from them that market maker is going to want to hedge that directional risk. They're also going to want to hedge their other you know vega risks of course but uh the directional risk is what they hedge with stock. And so if they buy a call or sell a put they are going to need to sell stock to hedge against that. Sure. uh and so to hedge the delta risk there. And so when you sell stock, if they happen to be long a thousand shares of stock and they need to sell 500, boom, that's nice and easy. They have the inventory right there and they can just sell it on the open market. Mhm. However, if they're already short or if they're completely flat stock, you know, they don't have any other position, they're going to need to sell short and they need to borrow that stock from somewhere because, you know, the very specific mechanics of shortselling are going out, finding someone that's already long the stock that's willing to loan it to you at an agreed interest rate. That might fluctuate, that might be fixed, might have a term on it, but you borrow that stock from them and then go out into the open market and sell it. Mhm. And the way that process works, you know, finding monoemono persons to lend you that stock, rather difficult. Many of the clearing firms provide this service. They have a stock loan desk. They will go out and source it from large asset managers. They will source it from institutions generally that tend to be much longer duration holders. So the stock loan desk is playing this intermediary to borrow the stock, give it to market makers so that they can sell it short as a hedge of their position and and yeah and and and the market maker who sells the shorter and I don't know how the retail person works necessarily, but so the the short seller is receiving interest when it's borrowable when you can borrow it, right? So that person is is is receiving interest because he is financing that long side for someone else. Correct. It's a it's a simple loan agreement that right you pay interest whether it's on a daily monthly basis that loan can be you know in most cases for market makers that's going to be uh a pretty flexible number it's going to be variable so and that number varies based on that hard to borrowness that we described so if something's widely available if you want to go and sell short Microsoft stock or Meta stock certainly not financial advice uh it's relatively easy to find someone who wants to hold Meta and get paid an extra little bit to let you go out and sell short. Now, you know, that's not going to dent their position at all. It's not going to, you know, have any effect on, you know, their exposure. Uh, you know, at the end of the day, they're still longing the stock. They've just, you know, hypothecated it and given it to someone else. And and you as a seller, you you're collecting interest, though, right? You're you're you're making some money on that when it's borrowable. Yeah. Correct. uh you know there you can loan out stock even as an individual and you still have that you know 100 delta exposure on your shares but you or delta one exposure on your shares but you also get that additional fee to from lending it out. Yeah. And where it gets tricky is when it's not readily easily available to to sell short. Okay. Because no one is going to loan it to or there's not enough float. to all that means is there's just not enough stock out in the system so that you can borrow the stock to sell, right? You can be charged a negative interest rate for short stock and you may fail on a particular short stock position in which case the clearing firm or the, you know, the brokerage buys you in on your shorts. What does that do? That takes away a big short delta. So, if you're hedging with stock on a, you know, because you have other longs in the portfolio and that goes away, now you're you're long and you've got to replenish that short somehow, right? Yep. And those buyins are brutal. not only because it completely shifts your position that you thought you were hedged uh but usually you're not getting favorable prices on on those buyins uh and so you know trading in something like an anthropic where you know when this first IPO is I I don't know the number of how many you know what percent of the float but something like SpaceX was only about 5% of the float that was available it's all locked up with insiders it's you know it's unavailable to trade and so when there's a very low quantity of stock the options liquidity isn't going to follow because if market makers can't hedge and they can't get a borrow on their sold puts and long calls like that's going to get more expensive. Yep. Yep. Very interesting. Okay. And again, I don't think for you retail folks who are watching this, what the hell are they talking about? Um the likelihood is is you're not going to run into this because most retail people are not don't have a you know a portfolio of options all over the place and they're they have a big Vega book and they're they're buying and selling stock against against a big portfolio of delta. So it's probably not going to affect you for the most part. I disagree. Oh, you um not only do I disagree, but I'm also going to answer that by pumping one of your uh soapbox points in that the I disagree because I think people will see this because to the extent that there's a very negative interest rate in here. Oh, I I know what you're going to say. Go ahead. But I I might agree with this, but go ahead. I think you agree with me. I just wanted to disagree with you. Um but the you're going to potentially see funny options prices because of this. Yeah. that if there's a negative interest rate, the forward value is gonna start looking wonky. Yeah. Okay. So, that's not what I'm saying, but I agree with that. Um I'm saying that you a retail person will see those funky prices, not know what the hell's going on unless they understand what we just talked about. Totally agree with that because conversion versions all of a sudden get out of line. That's number one. Synthetics, baby. Synthetics. Um and number two, what I was getting at is that they don't have the kind of book that a market maker has. That's what I was trying to get at. And and and they won't see it relative to their inventory. They will see it on the pricing page. Um very much so. And they're going to be like, "Oh, look at these puts. These are juicy. Let's sell them." Well, there's a reason. Yep. Exactly. Um, and so if markets start to look funny around something like this and it's, you know, not a normal distribution, you're, you know, your 50 delta strike isn't anywhere near the current spot price, that's where you start to want to look into those synthetics borrow rates potentially. Try and say, okay, well, how does this impact the call spread that I want to buy? Because I'm bullish. You know what I'm going to do? I'm going to post your number, your phone number on the on the screen, and I'm going to say, when you see that 50 delta go somewhere beyond at the money, call Mark. Sure. 1800 mark. Before noon. 1800 mark. [laughter] I only answer the calls uh before noon time though. That's right. You are a 10 delta beyond noon to pick up a phone. About a 75 before noon, you know, is I'd give me 85. 75. We'll see. We got to mark it 75 85. All right. We got to get going. Um first of all, let's thank our sponsors. Um let's you I'm thank them. You do a good job with this. Yeah. No, thank you uh MX for sponsoring us here. Uh obviously fascinating exchange. I think you know they came on sped everything up, you know, provided a lot of really interesting tools to make market makers jobs easier and you know they've won a lot of flow and uh most importantly they they like us and they like hearing us talk about hard to borrow issues. Perfect. Love it. And and uh you know we're going to we're going to be doing some things with them uh in the near future where they're going to come on the show. So that'll be fun too. All right, let's go to the next segment. Beyond the bell. We've got a good one today. You ready for it? Ding. I don't have a bell with me today because I'm on the road, but go. Let's do it. All right. So, here's the deal. I'm on the road, as you can tell. I'm not in my normal studio. I'm in Steamboat, Colorado. I guess it's officially Steamboat Springs. Is that It's probably Steamboat Springs the more I think about it. And I got my little hat on here. Can you see this? What this hat says? Uh, Lucky Eight. Lucky Lucky Eight Ranch. Lucky eight rants. All right. So, here's what here's the deal. Um, we're just out here on a little vacation. Uh, and you know, our host said, "Hey, let's go to this ATV park. Not park, but ranch. We're going to ride on these little machines that are going to go around this 3,200 acre ranch. And there's live bison herd on this ranch. I wish I had pictures of it. Maybe we'll do it on in the back end. Um, but you literally ride through the bison herd uh on this ranch. And I've got some great pictures. And some of these bison have become domesticated. There's a handful of them. One of them was raised. It's called Terry. They name them. Um, Terry is a bison that um was bottlefed by humans and reintegrated into the herd and now is out in the herd. And there's 600 bison. Okay. Wow. This Terry out of 600 comes up to the ATVs and sits with us and is basically letting letting all of us petter and hang out with us. It's amazing how, you know, out of 600 it knows. The guy goes, "Nope, there's Terry right there. They all look the same to me." [laughter] Um but so what is the bison being uh ranched for? Um so good question. The um what happened and this is the the this is the guide explain this to me. So I might not have all the details exactly correct but back in the you know hundreds of years ago 100 years ago bison were becoming nearly extinct. The the the Indians were killing them. Um and they got they went from like a million plus bison to like under a thousand. So then all of a sudden there's a big conservation pro project that came and now the the the herd is is definitely um you know more plentiful and back to over a million I think. But mainly these bison here they are um they're predominately used for for meat but more bison ground meat. And what what I learned is that some of the more high-end bison um tenderloin kind of things they don't do that. They don't supply that because that takes a lot of effort and you can you don't get much out of a bison for that little piece of tenderloin. Interesting. Yeah. And and you know people out there who love animals and all that kind of stuff. I get it. You know, oh those poor animals. I feel that way too a little bit, but you know I got to eat too. Um so they you know it's it's part of the ecosystem. It's hard to imagine that you know that these things have to get slaughtered just like cows do and just like you know the other things we eat do. And it's, you know, I'm out there petting bison. I'm like, you're going to be on my plate one of these days. It's kind of kind of tough. Um, but, you know, it does sound like they're being well treated though. That's thing there, right? If they're out there free range, you know, being cared for, that's the most important thing. Yeah. I know they are. Um, and you know, they and I and I asked the guy, you know, I'm sitting there literally from from, you know, 5t away these this this herd of bison are. They're gigantic animals. They can be over 2500 pounds. And obviously the bulls, the males are much bigger. Um, you know, they there's a mating season. They can be a little dangerous during mating season or if you get between a mommy and and the cub or whatever they call it. Um, that can be dangerous as well. But for the most part, you know, it's not too bad. Um, and then, you know, there was an albino one, a big Leo they called it. It's gigantic. This one was a 2500 pounder, uh, which is really cool. Very rare. That one will never be slaughtered because it's so rare. Um, but um, yeah, it's just amazing. Watch this. They roam around this 3,000 acres and they go from place to place and they they're eating grass. It's all they eat and they eat like, you know, some ungodly amount of grass. And when they make a poop, it's an ungodly sized piece of poop. I mean, it's a it's a it's a patty. You got And my my little ATV, I'm trying to avoid this the whole time. Those big poops are everywhere. So, it's hard to avoid, man. And you don't want that splattering up on you when you're in the in the little ATV. Absolutely not. [laughter] So, there's a lot of there's a little lot of side things, but real quick, so this guy this um this ranch it's in it's in uh Trout Creek Valley is what it's called. It's outside Steamboat, 35 miles, 3,000 acres. I asked the guy, I said, "So, some rich dude just having a party, you know, wanted to spend some money and have a ranch." Pretty much, yes. Um he was in the uh drilling business, created a patent on something, and you know how that goes. Patents are good when you own them. and he uh had had that forever and it's generational wealth and this is what they do on the side. So just an unbelievable place and the lucky eight happens to come from his favorite roulette number or something like that and uh I'm wearing the hat now. I I I donate 25 bucks to the cause. Very good 50 because my wife has one too. She got the pink making those bison nice and happy before you uh grind them up into a burger. Yep. And then just last before we go, um your uh what you what did your what was your wine? You had B not Basherville. Was it Bashville? Bocastle. Boast. Right. I like them both. But um that that probably goes pretty well with a little bison and I had the the Cliff Lead. We don't know how to pronounce LE, but yeah, I was going to ask you exactly this. So what are you pairing with that? The lead. Is that 100% cab? 100% cab. Um so here's what I did. I had to go buy this. We brought wine on the trip. cannot bring wine to the restaurant in Colorado. So, it's one of those those um states that has the ABC stores, you know, and it's very uh you know, there's a lot of uh red tape in and bringing wine. Most places you can bring wine. You couldn't bring it. So, we we have this for the house where we come back to have cocktail hour. Um and we're making steaks tonight for dinner in the place. And this is going to be one of our little gems. This is a great one. It's California. It's a Napa uh Cabernet. You know, I love Napa. Mark loves uh the French version, which is the original version. Um and we're making some steak, some big badass steaks. This is from Oakville, a little farther south in the valley, but real just I mean you it's so dark and just it's got great tannins and I I just love this one. One of my favorites. And you know, price point 70 to 100. Not too bad. Not going to kill you. And they've got different levels. You know, they got their premium level. That's probably 200 bucks. But this is just just wonderful. You love it. So that's perfect. What kind of steak are you pairing that with? We got two massive ribe eyes the size of your head. Love it. And then we have one gigantic New York strip the size of my head. O, all the fat in that ribeye is going to go so well with that. Oh, dude. I can't wait. So anyh who, so that's the wind that's that's us winding down this week. Good good conversation today. I really like that. So, uh, you guys, if you have any questions, um, don't forget to comment on the live show. We love having those comments. Uh, we don't have viewer mail today, unfortunately. So, I I wasn't able to get to that because I'm on the road. Don't tell anyone. Uh, but we'll do that next time. Um, Mark, you have a pile waiting for you back in Chicago. Yeah. Yeah, we'll have a pile. It'll be fine. Um, and you can find Mark at uh harvestedfinancial.com. Uh you'll find links to my blog the till uh where I talk about all kinds of fun stuff like this. Often reference wine uh and talk about options trading and options market structure. Awesome. Uh find me at lextrader.com. That's my email. I know I'm giving it. Just go ahead. I love talking. So you guys give me a little email and I'll be happy to answer things. We can also set up a call where I uh discuss certain things within the business and demos of some of our products. Um so feel free to do that. You know, as always, we uh we just love chatting, the two of us. Um and and doing some education on the whole thing. And can't forget to thank my X again. Um and visit hubtrader.com. That's it for me. Anything else? Happy trading. Cheers. Thanks everybody. Have a great weekend. Ding. You know how the financial world goes. Here comes the buzzkill. Please make sure to take some time to read this boring disclaimer. We will owe you one.