Explain the Risk-Reward Profile for an Option Writer Compared to an Option Buyer

The option buyer has a limited risk (premium paid) and theoretically unlimited profit potential (for a call or naked put). The option writer has a limited profit potential (premium received) and theoretically unlimited risk (for a naked call) or significant risk (for a naked put).

Their risk-reward profiles are inverted, with the writer accepting high risk for a small, consistent profit.