The audience sometimes knows more about the characters’ situations than the characters know themselves; this is called dramatic irony. The first option is correct.
Dramatic irony is defined as irony that is inherent in speeches or a situation of a drama and is understood by the audience but not grasped by the characters in the play. It is a literary device by which the audience's or reader's understanding of events or individuals in a work surpasses that of its characters.
