green shoe option

In business, position where the underwriter or manager of a share issue takes an option to acquire some of the new shares when they are issued. This is done to cover a short position taken on the new issue. Should the share price rise in the market above the issue price, the underwriter closes out the position, allowing the company to raise further funds from the issue. Should the share price fall then the company purchases shares on the open market in order to close the position; this creates demand for the shares and acts as a stabilizing influence on the market.