Greenshoe Option
Categories: Investing, Company Management, IPO, Trading
Has nothing to do with Louboutin or Manolo Blahnik. It's all about underwriters and selling stocks.
It all starts with a company making a public offering, where the business offer shares of the company to the public to raise money. To handle the public offering, the company hires underwriters. Paperwork is signed, lots of meetings take place.
Some of the paperwork can include a Greenshoe option, which is a provision that basically says "if lots of people want to buy the shares, the underwriters can sell up to X% of shares more than we originally agreed to." X usually = 15.
A Greenshoe option is a way of making sure that if more people demand shares than expected, the company can take advantage of all the interest and sell more shares (and make more money).