What is a Greenshoe Option?

What is a Greenshoe Option?

During an IPO, greenshoe options give underwriters the facility to acquire more shares to try and stabilise the stock price after initial trading. Tim explains the details around how these work and why they are necessary.
Overview

A greenshoe option is a mechanism specified in a prospectus or offering document during an initial public offering. The purpose is to ensure that a broker-dealer can stabilise the stock price by purchasing additional shares from the issuer in the event the price of over-alloted shares go up.

Key learning objectives:

  • Define a greenshoe option

  • Explain how a greenshoe option works

  • Describe an event when a greenshoe option is necessary

Join now to watch

This content is also available as part of a premium, accredited video course. Sign up for a 14-day trial to watch for free.

Summary
logo-animationlogo-animationlogo-animation

Related videos

Join now to watch

This content is also available as part of a premium, accredited video course. Sign up for a 14-day trial to watch for free.