Green Shoe

Green shoe, also known as an over-allotment option, is a provision in an underwriting agreement for an initial public offering (IPO) that allows the underwriters to sell additional shares of the newly issued stock if there is high demand from investors. The green shoe option permits the underwriters to purchase additional shares from the issuer at the offering price within a specified time frame, typically 30 days after the IPO. This provision helps stabilize the stock price and meet market demand by increasing the supply of shares available for purchase in the aftermarket. The name "green shoe" originated from the first company to use this option, Green Shoe Manufacturing (now part of Nike, Inc.), in the 1960s.