The option buyer (the holder of the contract) pays a premium for a contract that gives him the right (but not the obligation) to, until the option expiration date, put in the portfolio of the option seller (the contract writer) the underlying stock in exchange for the agreed upon strike price.
In other words, the option buyer has, until expiration date, the right to sell the underlying stock to the option seller, at the strike price.
With PUT options, the option (contract) buyer/holder is betting the market price of an underlying stock will fall below the strike price; such that it is more profitable to sell the underlying stock to the option writer.
The seller/writer is betting on the opposite outcome .
Need example here.
The risk to the option buyer (contract holder) is limited to the premium spent.
The risk to the option seller (contract writer) may be large but is predictable and limited since the maximum loss occurs when the value of the underlying stock goes to zero. The option seller may in theory receive stock that has a zero value.
The option buyer/holder can close his position by trading (sell to close) or exercising his option or allowing his option to expire.
The option seller/writer can close his position by trading (buy to close?).