How Reverse Greenshoe Option Works
- Reverse greenshoe option is a put option for a given amount of shares (15% of the issued amount, for example) held by the underwriter "against" the issuer (if a primary offering) or against the majority shareholder/s (if a secondary offering).
- The underwriter sells 100% of the issued stock.
- The IPO price is set at $10 per share.
- If it falls to $8, the underwriter purchases X amount of shares in the market and then exercises the option, buying the shares at $8 in the market and selling back to the issuer at $10. Buying a large block of shares stabilizes the price.
- If the price rises to $12, the underwriter neither purchases stock nor exercises the option.
Read more about this topic: Reverse Greenshoe
Famous quotes containing the words reverse, option and/or works:
“During the late war [the American Revolution] I had an infallible rule for deciding what [Great Britain] would do on every occasion. It was, to consider what they ought to do, and to take the reverse of that as what they would assuredly do, and I can say with truth that I was never deceived.”
—Thomas Jefferson (1743–1826)
“You don’t merely give over your creativity to making a film—you give over your life! In theatre, by contrast, you live these two rather strange lives simultaneously; you have no option but to confront the mould on last night’s washing-up.”
—Daniel Day Lewis (b. 1957)
“No one after lighting a lamp puts it under the bushel basket, but on the lampstand, and it gives light to all in the house. In the same way, let your light shine before others, so that they may see your good works and give glory to your Father in heaven.”
—Bible: New Testament, Matthew 5:15,16.