A provision in an initial public offering (IPO) underwriting agreement which entitles the underwriters to purchase more shares than specified in a deal in order to stabilize the share price after a deal commences trading in the secondary market. The issuer, in turn, agrees to sell additional shares to the underwriters at the offering price for a prespecified period of time. For example, a greenshoe option might allow an underwriter to purchase 15% more shares, if necessary. The option can be exercised by the underwriter at the discretion of the bookrunner within 30 days of the offering. Greenshoes can include both primary shares and secondary shares.

A greenshoe option is also known as an over-allotment option.