How Do You Spell GREEN SHOE?

1. A green shoe is a term used in finance and investment banking to refer to an option granted by the underwriters of a stock offering to purchase additional shares in the company at the offering price. This option allows the underwriters to stabilize the stock price in case of excessive demand during an initial public offering (IPO).

   When a company intends to go public, it usually hires an underwriting syndicate to handle the IPO process. The underwriters agree to purchase and distribute the shares of the company to the public. In such cases, a green shoe option or an overallotment option may be included in the underwriting agreement. This option allows the underwriters to purchase additional shares from the company at the IPO price, typically around 15% of the total shares offered.

   The green shoe option helps stabilize the stock price during the IPO by allowing the underwriters to buy more shares if there is excessive demand. If the stock price starts to rise significantly due to high demand, the underwriters exercise the green shoe option and purchase additional shares from the company at the IPO price. These additional shares are then sold to the public, effectively increasing the supply of shares and keeping the price in check.

   The term "green shoe" comes from the first company to use this option, the Green Shoe Manufacturing Company in the 1960s, which was a subsidiary of the investment banking firm, Blyth & Co. The "shoe" part of the term refers to the practice of "covering the short" by purchasing shares on the stock market to return to the lender, in order to close out a short position.

Common Misspellings for GREEN SHOE

The word "green shoe" originally comes from the financial world, specifically the field of initial public offerings (IPOs) in the stock market. The term is derived from the "Green Shoe Option", which is a provision that allows underwriters to sell more shares than originally planned.

The concept of the "Green Shoe Option" was named after the Green Shoe Manufacturing Company, a US corporation founded in 1919. This company was the first to use this type of provision during an IPO in the 1960s. The name "Green Shoe" came about as a result of the company's name being associated with this practice.

Over time, the term "Green Shoe" has been used to refer to both the option and the shares that may be sold through it during an IPO. It has become a common term in financial circles, referring to the overall process of allowing additional shares to be issued and traded.