An option that allows the underwriter of a securities issue to purchase and resell additional shares. By this option, a company can allot additional number of shares, if needed, over what it originally intends to issue. In this sense, the greenshoe option can help stabilize the market price of the stock as it comes down under selling pressure. The term “green shoe” was originally used by a company founded in 1919 under the name “Green Shoe Manufacturing Company” (it was later renamed “Collective Brands”. It was the first company allowed to use this option in an equity offering (1971).
This option is also referred to as an over-allotment option.
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