medium · Investment Banking rx-dcm-ecm
The 'Greenshoe' option in an IPO allows underwriters to sell 15% more shares than the original offering size.
If the stock price falls below the IPO price on the first day, how do the underwriters typically respond using the Greenshoe mechanics?
- They buy shares in the open market to cover their short position, providing price support.
- They exercise the option and buy more shares from the company to increase supply.
- They force the company's founders to sell more of their personal shares.
- They cancel the IPO and return all funds to the investors.
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