A means of stabilising a new issue. The manager of the issue takes a short position in the stock which is covered by an option on new shares to be issued by the company. If the share price after the issue rises above the exercise price of the option, the manager can close his position by exercising the option on the company. This enables the company to access the market for additional funds on the issue. If the share price falls below the exercise price of the option, the manager will let the option lapse and close his position by buying shares in the market. This will create additional demand for the shares and act as a stabilising mechanism. Dresdner Kleinwort Wasserstein financial glossary
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A provision in the underwriting agreement for a share issue that allows the sale of additional shares to the public if demand is high. Named after the Green Shoe Company which first granted such an option. Sometimes known as an Over-Allotment Option.
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greenshoe option UK US noun [C] FINANCE, STOCK MARKET
► an agreement that allows someone who sells shares for a company to sell more shares than the company had originally planned to sell: »
Greenshoe options typically allow underwriters to sell up to 15% more shares than the original number set by the issuer.
Financial and business terms. 2012.