[justinv]

Here's a good take (sorry for all the Levine links, I just think he provides crisp explanations of financial instruments) on what the underwriter does:

The way the greenshoe works is that, in the IPO, the underwriters sold 15 percent more stock than Lyft did. That is, Lyft sold the underwriters 32.5 million shares of stock in the IPO, but the underwriters placed 37.4 million shares with investors. (The underwriters sold the shares for $72, but bought them from Lyft at $70.02; the $1.98 difference is their fee for the underwriting.) The underwriters were short the extra 4.9 million shares. If the stock went up in the days after the IPO, stabilization would be unnecessary, and JPMorgan would cover that short position by buying the extra shares, from Lyft, at the IPO price. (This is called the “overallotment option,” or “greenshoe.”) If the stock went down, though, or threatened to go down, JPMorgan would cover the short position by buying back the extra shares in the market, which would have the effect of stabilizing the price, because JPMorgan would be a big buyer.[0]

[0] https://www.bloomberg.com/opinion/articles/2019-05-07/lyft-s...

[airstrike]

No one should apologize from posting Levine links – that man is a legend and his prose is unquestionably satisfying to read

[sixo]

+1 He's singlehandedly taken me from completely disinterested in finance to fairly interested. I don't think I've ever read nonfiction writing so consistently good