Not everyone can sell naked calls, nor should they. The risk potential is unlimited.  Your broker is going to want to know if you have any experience with options, and he's going to require a certain amount of cash or equities in your account, and that amount can vary from broker to broker.

Let's work through an example. Suppose XYZ stock is at 40. The Oct 40 call is at 3 1/2. If you're bearish on this stock you could do several things, but let's assume that you are an experienced trader and understand the risk involved and prefer to sell premium, that is, sell a call option for a given amount of money in hopes that the option will expire worthless and you get to keep the money you took in.

Once your brokerage account is set up and funded, you would call your broker (or do it online), place an order to sell the Oct 40 Call. This is a "Sell to Open" order. You are selling something to open a position. If you sold 10 contracts, $3,500.00 would be deposited into your account the next day. This will show up as a short position on your statement from your broker.

Now, if the stock falls below the 40 strike price on expiration day, the option expires worthless and the entire $3500 is yours to keep (less commissions of course.) But you don't have to wait until expiration date to do something with it. If you sold options at 3 1/2 and the stock price fell quickly, the option price would fall quickly too.  You could buy it back and close out the position for a quick profit. Your profit is the difference in what you sold them for and what you had to pay to buy them back to close the position. Frequently, options are sold many times prior to expiration date.

What happens if the price of the stock goes up after the position is opened? First, if you're the seller of the calls, and you haven't closed out the position on expiration day, the stock can be called from you. That means you have to buy the stock at the current market price and sell it for the strike price. This is where the unlimited risk comes in. If you sold the Oct 40 Call and the price of the stock went up to 45, you'd have to buy the stock for 45 and it would called from you at 40, causing you a loss of 5 points.  Of course, the cost of the stock would be offset with the premium you received in the first place, so you loss would actually be 1 1/2 points.

You could choose to buy the call back just before expiration so that the stock would not be called from you. The Call price would be 5, and maybe a little change, since the call is 5 dollars in the money, right at expiration. You sold the calls for 3 1/2, had to buy them back for 5, so you have a loss of 1 1/2.

Selling calls can be very profitable, but it is very risky. Only the well capitalized and experienced traders should participate in these types of trades.