"Sell to close" is the other half of "buy to open." When you initiate a long position by buying to open, the trade will eventually have to be closed. The three ways this can happen is if the option expires worthless, it's exercised, or selling to close it.
Here are some practical examples -
In order to lock in a profit on a winning trade (or to cut your losses on a losing trade), you simply submit an order through your online broker selling to close your original call. Simple as that.
In the bull call spread, for example, you initially bought to open a call with a certain strike price and then sold to open a second call at a higher strike price. Closing the spread requires selling to close the first call and buying to close the second call.
KO - 125 shares
KMI - 100 shares
BP - 100 shares
MCD - 30 shares
JNJ - 25 shares
GIS - 25 shares
PAYX - 25 shares
Open Market Purchase Price: $20,071.83
Less Booked Option Income: $16,341.71
Tot. Discount: 81.42%
Adj. Div. Yield: 19.59%