Greenshoe option
MarketsDefinition
In an IPO, the option granted to underwriters to purchase up to 15% additional shares from the company at the offering price within 30 days. Used to stabilize the stock price after listing — if demand is strong, exercising the greenshoe brings more supply; if weak, underwriters can buy in the open market to support the price.
Named after Green Shoe Manufacturing, the first company to use the structure (1963).
Named after Green Shoe Manufacturing, the first company to use the structure (1963).
Example
A company IPOs 100M shares at $20. Underwriters get a greenshoe for 15M more shares. If the stock pops to $25 on day 1, underwriters exercise the greenshoe → buy 15M shares from the company at $20, sell at market for an immediate profit and to dampen the rally.