Overallotment
Overallotment, also known as the Greenshoe Option or Overallotment Option, is a provision in a securities offering that allows the underwriters to sell additional shares beyond the original number planned, typically up to 15% more. This mechanism is named after the Green Shoe Manufacturing Company, which was the first to use it. The overallotment option helps stabilize the price of the security after the offering by allowing underwriters to cover short positions created by selling more shares than initially allotted. If the demand for the securities is high, the underwriters can exercise the greenshoe option to issue more shares, thus meeting the excess demand and helping to prevent significant price fluctuations.
Definition: Overallotment, also known as the
