The purpose of a buy to close transaction is to close out any short option position that required you to sell to open in order to initiate the trade. In this way, the process is similar to short selling stock. You initiate a trade by selling something first (and receiving cash) and then later you close the trade by buying it back.
To illustrate, please see the three examples below.
Here are three quick examples:
If, however, you anticipate that the put will retain value at expiration (i.e. the stock will trade below the strike price), and if you're unwilling to allow the put to be exercised against you, then you will have to buy to close in order to close out the transaction.
If it looks like the stock will close below the strike price of the short put (the one you sold to open) then you will most likely want to close the entire bull put spread. And you do that by simply reversing the action of the initial trades. The put you sold to open must be bought back to close, and the second put which you purchased (buy to open) at the lower strike price must be sold to close.
KO - 125 shares
BP - 100 shares
MCD - 30 shares
JNJ - 25 shares
GIS - 25 shares
PAYX - 25 shares
Open Market Purchase Price: $16,066.88
Less Booked Option Income: $10,568.35
Tot. Discount: 65.78%
Adj. Div. Yield: 12.08%