A greenshoe option isn't an over-allotment option. This option allows the underwriters to sell additional shares during an IPO. 2 this option they can sell 15% more shares than the number of shares they've agreed to sell in the first place. However, there is a limitation that this option needs to be exercised within 30 days of the offering. Between the issuing company and the underwriters, there is an IPO underwriting agreement that has specific details of the allotment.

Investment banks are the brokerage agencies are the ones who are usually underwriters and they can exercise the overallotment option in case the demand of the share exceeds the expected demand. The over-allotment option or Greenshoe option is a practice to benefit from the demand for the shares of the company. When a well-known company issues an IPO, many investors are interested and would like to invest in a company. The greenshoe option is also used as a price stabilizing strategy. as the overallotment is done when there is an increase decrease for the share of the company and because of this share price goes below the offer price and the underwriters suffer the loss the shares are bought at a low price to stabilize the price. To increase the share prices, It is necessary to reduce the supply of the share so the buy-back of the share offers. Then the price exceeds the offer price then the greenshoe option is exercised. In such cases underwriters are unable to buy back the shares as it will result in a loss when buying it at a market price so, the underwriters can only exercise the greenshoe option and by the additional share add the original offer hi and avoid incurring any loss.

There is a full greenshoe option, partial greenshoe option, and Reverse greenshoe option. When the underwriters only buy back a part of the share from the market before there is an increase in the price it is known as a partial green show option. When the underwriter exercises its whole option and obtains all the additional shares at IPO it is called a full greenshoe option. Underwriters are allowed to sell the shares to the company or issuers at a later date and this is a right given by the rivers greenshoe option. Buying Back the shares and then selling them to the issuers at a higher price at a later stage helps the underwriters to stabilize there the stock prices then the demand for their share is fluctuating.

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