You'll owe income taxes on any growth on the after-tax contributions when they're converted to Roth - converting it immediately after contribution is preferred

My plan requires you to mail or fax a form, and I only make after-tax contributions in the back half of the year, so I typically only do the conversion 2-3 times a year a few months apart to avoid the hassle, gains are typically minimal for that short of a time frame (though immediate conversion with zero gains is more ideal)

Confused about your option 1 though - are you referring to leaving it in the after-tax 401k, or are you saying auto converting it to Roth 401k?