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
Summary
Expert
Tim Skeet
Banker with more than 35 years experience in the financial markets. Tim has been an ICMA board member and an ECBC steering committee member. Tim is a Freeman of the City of London.
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