What is reverse greenshoe?

A reverse greenshoe is a provision in a public offering agreement that allows the underwriter to sell shares back to the issuer at a later date. It’s used as a safety mechanism to support the share price should the stock price fall after the initial public offering (IPO).

If the stock price were to fall, the provision would let the underwriter buy shares in bulk at the reduced cost, and sell them to the issuer at a higher cost in order to stabilise the price.

Where have you heard about reverse greenshoe?

The term "greenshoe" comes from the Green Shoe Manufacturing Company, which was the first company to include the clause in their underwriting agreement.

What you need to know about reverse greenshoe.

A reverse greenshoe is a form of put option which gives the owner the right to sell an asset to a given party by a predetermined date and at a specified price.

It’s different from a greenshoe, which is a type of call option, that allows underwriters to sell investors more shares than originally planned in order to stablise the share price.

Find out more about reverse greenshoe.

Find out more about how greenshoe provisions can benefit investors and learn the difference between a put option and a call option.