The simple textbook definition is a buyer of a Put option has the right (but not the obligation) to sell a specified quantity of a security at a specified price (strike price) within a fixed period of time (expiration date).
Outright Put buying has almost unlimited upside with limited downside. Securities mostly don’t go below $0 (ahem…Crude oil) so most securities upside is capped by the $0 boundary. The downside of a Put buyer is limited to the premium they paid for that Put, same as a call buyer. A seller of a Put has the exact opposite risk profile as the Put buyer. The seller collects the premium paid for the Put, but also has that “unlimited” downside.
PROFIT AND LOSS GRAPH (at expiration)
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