Asset-Or-Nothing Put Option

finance a la shmoop what is a greenshoe option. oh you should be so lucky

green shoes on leprechauns and investment bankers are such a good thing. [leprechaun smiles]

why? well because when there is so much excess money laying all over the floor

your shoes turn green from the bills as you take whatever money you can carry

and run. that's how the name happened anyway a greenshoe option is a deal term

that an investment bank negotiates for in an IPO they run. and that IPO remember

is an initial public offering of stock. this can apply also to secondary

offerings and other kinds of offerings but we're focused on an IPO here as a

green shoe lives. if that IPO is marketed so well and there is so much demand for

shares in the company from the public that the bank believes it can raise the

IPO price and sell more shares to the public then that IPO was a huge winner.

the bank will exercise its greenshoe option and instead of selling 30 million [money falls from the sky]

shares of Chucky LARM calm to the public at 12 bucks a share well it'll bring the

company public at 15 bucks a share and sell 40 million shares. the math? it

raises 600 million bucks in the latter green shoe field option versus 360

million bucks in the former. the green shoe is the extra 10 million shares that

the bank can sell and get commission on while doing so. and if you think about

that world as a 5% kind of Commission world well the banks go from 18 million

in total Commission's to 30 million. yeah nice freakin bump especially when

there's a basic fixed cost of maybe 10 million dollars in either case. so you

make a lot more profit on the 30 million story here yeah? all right and having

more shares out there trading is a good thing for the company because its shares

are then more liquid. it's easier to buy and sell larger blocks of stock and the [stocks being sold in a graphic]

big institutions like that. they tend to then take a lot more

interest in the stock and usually that leads to higher stock prices down the

line. and all that liquidity or movement shares trading back and forth well

that's more Commission dollars in the future for the bank. so check your shoes

if they're green well you're either in the money or you should really get Rover

to the vet. [green poo on a wood floor]