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I would prefer to go with option 2 whenever we have such a critical situation We need to pause for a while thinking of alternatives and make a firm decision.Simulatenously need to keep informed about the situation to all the stakeholders
Look for choices carefully:
You can renegotiate on timeliness with client.
Or
If you feel in short duration you can arrange resources then involve more resources and give delivery on time.
Don’t compromise with quality, otherwise later it would cost more.
I am not in that situation if quality is important than quantity you can choose for alternatives in market but not always its that case.
Make sure that you provide the good quality and good work so that the client comes back.