Greenshoe Options: Source of Additional IPO Shares

Summary

The document explains where additional shares come from when IPO underwriters exercise a greenshoe, or overallotment, option. It says that the option is described in the prospectus and that exercising it leads the company to issue additional shares. The company receives proceeds from those shares, making the transaction similar to a small secondary offering.

This addresses the basic source and disclosure questions, but the explanation is brief. It does not describe how underwriters manage an overallotment before exercise, the option's precise terms, or the conditions governing its use. No market example or evidence beyond the stated mechanics is provided, so readers should consult the relevant prospectus for a specific IPO.

Key ideas

• A greenshoe is an overallotment option described in the IPO prospectus.
• When underwriters exercise the option, the company issues additional shares.
• The company receives proceeds from the newly issued shares.
• Exercising the option is economically similar to a small additional share offering.

Tags

# Where do Over-allotment (Greenshoe) option shares come from?


# Where do Over-allotment (Greenshoe) option shares come from?












I'm just wondering, if following an IPO the share price goes up and the underwriter calls the option, where do those extra 15% shares come from?

Does the company have to issue more stock to cover the option, or are those stocks originally issued anyways but just not sold? (in which case, do they sell them afterwards?)

And also, are Greenshoe options public information?

Thanks!

## Answer by Alex C (score 2, accepted)

https://quant.stackexchange.com/a/19326

Yes, the greenshoe option, technically called overallotment option is described in the prospectus.

Yes, in the event the greenshoe option is exercised by the underwriters, the company issues additional shares and receives additional proceeds. Essentially it is as though a small secondary offering took place.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.