"The biggest thing on my mind with this subject is how much capital needs to be tied up and reserved when selling put options." - Sorry, I meant to say "the biggest thing that is still on my mind," since it has already been kindly addressed by some in this thread.
Since most people understand and can easily visualize Covered Calls the Covered Call = Selling Naked Put comparison should be mentioned in every "Selling Put" thread. When that comparison is made people look at Naked Puts in a new light - they don't appear so risky anymore.
I think to reduce the capital requirements one can use a bear put spread (sell a put and buy a put at different strike). The following article explains it: http://www.investopedia.com/articles/optioninvestor/09/bear-vertical-put-spread.asp
But I think there is a regulation that says that only market makers are allowed to do naked short selling.
It's the SEC Regulation SHO: https://en.wikipedia.org/wiki/Naked_short_selling "Naked short selling, or naked shorting [...] As part of its response to the crisis in the North American markets in 2008, the SEC issued a temporary order restricting short-selling in the shares of 19 financial firms deemed systemically important, by reinforcing the penalties for failing to deliver the shares in time.[8] Effective September 18, 2008, amid claims that aggressive short selling had played a role in the failure of financial giant Lehman Brothers, the SEC extended and expanded the rules to remove exceptions and to cover all companies, including market makers." Here it says, that even market makers are not allowed. Dunno, maybe it applies to stocks only, not options?
I am not sure you even read what you posted above. It specifically says that in 2008 the selling short of shares of 19 banks or financial firms was TEMPORARILY restricted. Not sure what the relevance is. Anyone can sell options short as long as you meet your broker's requirements.
" Newbie Questions About Selling Put Options " "You shouldn't believe everything you read on the Internet" - Abraham Lincoln.
Perhaps you are right, however both covered call and short put (naked) are classified as Unlimited Risk position according to Baird!