Buying a sell option is called Long Put. Investor make profit in the downward price movement in the underlying stock. This strategy is used to provide protection held in the portfolio. This Strategy is used by the Bearish investor.
Maximum profit is unlimited with downward movement of the underlying stocks.
Maximum loss limited to Premium paid+ commission. This happens when the underlying price is >= strike price . Risk is limited here as a put option gives the buyer of the put a right to sell the stock to the put seller at a price specified at the time of the contract.
Time value decreases towards the expiry date. Sell your long options before expiry to avoid the effects of time decay.
This strategy breaks even at expiry if the stock price = strike price – option premium
For example, Boeing Aviation(BA) trading at $150 in NYSE. March 2017 Puts are trading at $0.02. At this rate with $2, you can buy one contract of 100 shares ($0.02*100=$2). If the BA stock stays at $150 or above at expiry, the maximum you could lose is the Option Premium of 100 shares which is $2. If the stock falls to $140 at expiry, you will make profit of ($150-$140) * 100 shares = $1000 – commission.