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The first is by far the most likely from a scientific point of view, and the evidence for it is actually pretty overwhelming.Not really, few physicists have tried to explain consciousness - Roger Penrose being a notable exception - and no physicist has ever sufficiently explained how artifacts like the complete works of Shakespeare come about. They seem to have been invented by Shakespeare but if Shakespeare had no free will to invent them, then were did they come from? While we're at it, where does the continuum and the mathematical structures between real numbers come from? Are real numbers even physically possible? I've read a paper once that argued that they cannot be physically realized, because that would violate the laws of thermodynamics (and a few others, too). What about the rest of mathematics like perfect squares or functions that cannot be computed? Are these illusions?
In a nutshell, there is a whole lot that physics cannot explain, including all of human culture. That's the gist of Popper's three worlds argument. Physicists surely claim that the physical world is closed, but they haven't provided any arguments that go much beyond "human culture is super complex but we believe we could in principle explain it somehow with our theories".
Now Popper argued for some not too plausible dualism, but the central negative part of his argument still stands.
As for explanations, I agree that not many good ones are on the table and maybe the Philosophy of Mind confuses more than it clarifies. My personal favorite speculative theory is a rare form of computationalism, namely the position that some computations might have consciousness as an emergent property when they run on a suitable physical device, and that in theory we could even be able to determine which class of computations these are by mere analytical insight, provided we have the proper conceptual tools. Computationalism is not very popular in philosophy, though.