No. 2 is really a false choice. You are making arbitrary and absolute the same thing and they are not. Although God's laws may be arbitrary (he decides what is right and wrong as he created everything in existence), they are also absolute in the sense that he is the ONLY possible source for absolute objective universal morals and value other than man. Nice try. Name another.
I'm still waiting for a third source for absolutes. God, man, or...... (you fill it in).
While it would certainly be fitting, "I know you are, but what am I" just doesn't seem satisfactory somehow. So we'll try it this way: If God's laws are arbitrary, how can they possibly be objective? Not only that, but who, exactly, is the final arbiter of what God says this absolute morality is? You? The Pope? How come the Christian god gets to be the source of absolute morality? Why not fair time to Budda, Allah, Shiva, or Ra? Shouldn't we just present all possible alternatives and let the kids make up their own minds?
Because "God" is an arbitrary concept upon which no two people will agree, moral must be objectively defined without resorting to mysticism.
It starts with the premise "All people are equal." Not, of course, in terms of abilities, strengths and so forth, but in terms of moral actions and rights. Everything else can be logically derived.
Your system of morality must necessarily start with "There is a God, and this is what I say he says, and no, I can't prove it to you so you're going to have to accept it whether you like it or not." Sorry, too many arbitrary terms to be objective.