What is the meaning of over-allotment option?

An overallotment is an option commonly available to underwriters that allows the sale of additional shares that a company plans to issue in an initial public offering or secondary/follow-on offering. An overallotment option allows underwriters to issue as many as 15% more shares than originally planned.

Is over-allotment option good or bad?

When the supply goes down, the price of shares tends to go up. Sustained demand for shares due to the company’s good performance can raise the price of shares above its offer price. Since this overallotment option helps to stabilize prices during an IPO, it is considered to be an IPO’s best friend.

How does over-allotment option work?

A greenshoe option is an over-allotment option. In the context of an initial public offering (IPO), it is a provision in an underwriting agreement that grants the underwriter the right to sell investors more shares than initially planned by the issuer if the demand for a security issue proves higher than expected.

Why is it called a greenshoe?

The term is derived from the name of the first company, Green Shoe Manufacturing (now called Stride Rite), to permit underwriters to use this practice in an IPO. The use of greenshoe options in share offerings is widespread for two reasons.

What does an overallotment in an IPO mean?

An overallotment is an option commonly available to underwriters that allows the sale of additional shares that a company plans to issue in an initial public offering or secondary/follow-on offering. An overallotment option allows underwriters to issue as many as 15% more shares than originally planned.

What does it mean to have an overallotment option?

Updated Jan 16, 2018. An overallotment is an option commonly available to underwriters that allows the sale of additional shares that a company plans to issue in an initial public offering or secondary/follow-on offering. An overallotment option allows underwriters to issue as many as 15% more shares than originally planned.

Why are greenshoe options called overallotment options?

The Origin of the Greenshoe. The legal name is “overallotment option” because, in addition to shares originally offered, additional shares are set aside for underwriters. This type of option is the only SEC-sanctioned method for an underwriter to legally stabilize a new issue after the offering price has been determined.

How many songs can I replace on my iPod Classic?

By using the additional Nice-To-Have Playlist, every Sync would remove recently played nice-to-have music and replace it with a new selection. By the way, 90GB of music is approximately 12,000 songs which will play continuously for 40 days!