By Aimee Bohn The greenshoe option allows underwriters to buy extra shares from a company that goes public. It is an over-allotment clause in the underwriting agreement of an initial public offering (IPO). It’s used to support the share price of a company following the IPO process.
A greenshoe option often allows underwriters to buy up to 15% more of a company’s shares than initially offered. Over-allotting shares helps stabilize the price when public demand is higher or lower than expected.
How Does the Greenshoe Option Work?
A greenshoe option helps to reduce volatility in the market caused by supply-and-demand inconsistencies. An underwriter can short sell …read more
