Series 79 practice questionmediumGreen Shoe Option
A green shoe option in an equity offering is most commonly exercised when:
- AThere is weak aftermarket demand
- BShares are trading substantially below the offer price
- CLock-up periods expire early
- DThere is strong aftermarket demand and the stock trades above the offer price✓ Correct answer
Explanation
Why D — There is strong aftermarket demand and the stock trades above the offer price
Underwriters exercise the green shoe option to satisfy excess demand when the stock performs well. It is not generally exercised if demand is weak or the price drops below the offer price.
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