overallotted

Overallotted refers to a situation in financial markets, particularly in the context of initial public offerings (IPOs) or other securities offerings, where the demand for the shares exceeds the number of shares actually available for sale. This means that more investors want to buy the shares than the issuer is willing or able to sell.

When an offering is overallotted, it signifies strong investor interest and potentially a successful launch for the company. The demand outstripping supply can lead to an increase in the stock price once it begins trading on the secondary market. In some cases, an overallotment option, also known as a greenshoe option, is granted to the underwriters. This option allows them to sell additional shares of the company's stock to investors, up to a certain percentage of the total offering size, if the demand proves to be higher than anticipated. This helps stabilize the stock price in the aftermarket and provides a mechanism for the underwriters to cover any short positions they may have taken during the offering process. If the stock price trades above the IPO price, the underwriters can exercise the overallotment option to purchase more shares at the IPO price from the issuer and sell them to investors at the higher market price, thereby profiting from the overallotment. Conversely, if the stock price falls below the IPO price, the underwriters may not exercise the option, and they might cover their short positions by buying shares in the open market at a lower price.