Series 79 practice questionmediumGreen Shoe Option
What is a 'reverse green shoe' option?
- AAn option that allows the underwriter to return shares to the issuer if the stock drops
- BUnderwriter put option to sell shares back to issuer at the offering price✓ Correct answer
- CAn option that cancels the original green shoe provision
- DAn option that converts common shares to preferred shares
Explanation
Why B — Underwriter put option to sell shares back to issuer at the offering price
A reverse greenshoe gives the underwriter a put to sell shares to the issuer at the offering price. It supports stabilization when the market price is below the offering price: the underwriter buys shares in the market and can put them to the issuer.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 995+ Series 79 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Spot an error in this question or explanation? Tell us — we fix these fast.
Related Underwriting & New Financing questions
- What is the standard lock-up period for company insiders in a typical IPO?
- After an IPO priced at $30 per share with a 15% overallotment option on 8 million shares, the stock drops to $27. The…
- Who has the authority to waive or release lock-up agreements early?
- An IPO is priced at $25 per share with 10 million shares offered. The underwriters exercise the full 15% overallotment…
- A company completed its IPO 120 days ago at $35 per share. The stock now trades at $52. The CEO contacts the lead…
- What is the maximum overallotment option (green shoe) typically permitted in a public offering?
- Under Rule 144, what is the holding period for restricted securities of a reporting company before they can be sold?
- What must be disclosed in the prospectus regarding stabilization activities?