Greenshoe Option

An IPO underwriter's right to sell up to 15% extra shares to stabilize the new stock.

A greenshoe option (formally an over-allotment option) lets IPO underwriters sell about 15% more shares than planned, then either buy them back in the market if the price sags — supporting the stock — or purchase them from the issuer at the offer price if demand is hot. It is the one legal form of price stabilization in a new listing, and nearly every modern IPO includes one. The name comes from the Green Shoe Manufacturing Company, whose 1960 offering used the mechanism first.

When the stock dipped below the offer price on day two, the underwriters used the greenshoe option to buy shares and steady it.