Green Shoe Option

A Green Shoe Option (also known as an over-allotment option) is a provision in an IPO underwriting agreement that allows the underwriter to sell up to 15% more shares than originally planned if demand exceeds supply. This mechanism helps stabilise the stock price in the post-listing period by enabling the underwriter to buy back shares in the open market to support the price if it falls below the issue price. In the Indian IPO market, SEBI permits the use of the Green Shoe Option to ensure orderly price discovery after listing.