green shoe option


2 Answer(s)


it is the process of stabilizing the extended shares which are issued in excess to the shares which are demnaded to be listed, thereafter when there is any further issue, you can use these shares priorly

It is a price stabilization mechanism which is exercised during IPOs with a maximum extra allotment limit of upto 15% of the total allotment of the shares issued. It is also called as overallotment option.
If the demand for the security is greater than supply,the greenshoe option is put in place to avoid the sudden jump in price by increasing the supply.
The underwriter with a pre agreed contract sells the overalloted shares to investors when demand of the security exceeds its supply, stabilizing the price of the security. This will prevent the price falling below the issue price.
This technique was first used by an US green shoe company called stride Ride after which this term got coined.