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A term associated with the security/share market. This is a clause in the
underwriting agreement of an initial public offer (IPO) by a company which allows to sell additional shares (usually 15 per cent) to the public if the demand for shares exceeds the expectation and the share trades above its offering price. It gets its name from the Green Shoe company which was the first company to be allowed such an option (in the USA, early 20th century). This is also known as ‘over-allotment provision’.
The company availing this option uses the proceeds (i.e. from the greenshoe option) to prevent any decline in market price of shares below the issue price in the post-listing period (in such cases the aforesaid company uses the money to purchase its own shares from the market—as demand increases, the market price of its shares picks up).