Yes, I believe you are right. Selling a put ties up quite a bit of cash in the account. But, on the plus side, at least the cash is still making some money in the money market.
Actually, I don't think it's even this stringent. I think (but am not sure) that as long as your potential put obligation is less than a certain percentage of your account balance, then you can have that balance invested in whatever you want. So you can have all your money tied up in stocks working for you, and if the put gets exercised for some reason then the broker may sell some of your stocks to cover your obligated purchase.
So if your broker's required ratio is 50%, and you have a $10,000 account balance, you can write puts that are worth up to $5,000 of the underlying stock. And I'm pretty sure that you can continue to have your entire account balance fully invested if you want. I have not actually done this, so I'm not 100% sure, but I believe this is how it works.
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