[mkhan]

By using your option you probably meant buying and later exercising it. Here is a non-speculative, non-hedging buyer's statement. At an ITM strike profitable for exercising but still listed, it's better to re-sell rather than exercise because the option price is always higher that the instant payoff. This is why implied volatilities at listed ITM strikes are pumped up, causing the smile and skew. It's better to exercise sooner because with time you lose in the option premium you could reclaim. If the strike is no longer listed (this may happen if the underlying moves ITM too far from the strike and the option becomes too expensive and, as a result, even more beneficial to exercise), exercising it sooner or later is your choice. However, again, it makes a better sence to exercise it immediately and lock your profit from a risk of potential underlying moves due to the drift (alpha). Holding the option to the very end in a European way in general is not good because, as you correctly mentioned, the premium for time decreases with getting closer to the expiration and you just lose the money you initially paid for the option. An early exercise also gives you more of instant flexibility in your further trading decisions.