Asked by Marcos Urbina on Jun 25, 2024
Verified
Overallotment provisions include an implicit call option.
Overallotment Provisions
Options in securities underwriting that allow underwriters to sell more shares than initially planned, useful in managing demand and stabilizing the market price post-listing.
Implicit Call Option
A provision in a financial contract that gives the issuer the right, but not the obligation, to take a specified action under certain conditions, often found in bonds.
Include
To contain, encompass, or have something as part of a whole or group.
- Gain an understanding of the elements influencing call option prices.
Verified Answer
KS
Kalyn SchmidtJul 01, 2024
Final Answer :
True
Explanation :
Overallotment provisions, often included in the underwriting agreement of an initial public offering (IPO), give the underwriters the option to purchase additional shares at the offering price. This acts as an implicit call option because it allows underwriters to buy more shares at a predetermined price, typically to cover over-allotments, if the demand for the stock is higher than expected.
Learning Objectives
- Gain an understanding of the elements influencing call option prices.