This is a personal decision which needs to be weighed against your personal budget and time required.
The iMac is already 6 years old. You might only get a year or two out of it before you can no longer upgrade to the latest macOS. Seems Big Sur and Monterey will support this model but what comes after Monterey likely will not. If the cost of the SSD and your time to replace the Fusion disk(s) with a single SSD is worth it for only a couple years of additional usage then go for it.
I seriously doubt you will get much of anything from Apple on a Trade-In for this old iMac other than the peace of mind that it will be recycled.
If you can get an external SSD booting and working that will potentially cost less and require no labor on your part and hold you over till Apple releases the next Apple Silicon update for the 27" iMac line. The 24" is impressive but what's coming is going to be so much more. This option buys you just as much time and alleviates you from risking damage to the iMac. The only issues I have heard of external booting Big Sur have been PMU related and an SMC/NVRAM reset fixes that. You should be able to boot reliably from the external drive providing you set the startup volume while booted from the external drive. If not then reset the SMC and NVRAM. Also during the USB installation you will have to hold Option to boot into the external drive initially and each time it reboots during the installation or when installing updates.
I will vote for Option 2. Plenty of experienced tech's have damaged iMacs by accident while attempting to replace the internal drives. Another problem is the replacement glue strips. You cannot obtain authentic parts from Apple so there have been reports of an iMac screen falling out because the glue strips failed. So you risk breaking fragile connectors or having the glue strips fail, etc. Also be wary of screws many are not the same length and size so make note of every single screw and where it belongs. Don't forget to re-attach all the antenna's or you will have WiFi / Bluetooth issues. I'm a pro with 30 years experience building and repairing computers and I would be very nervous doing this procedure the very first time on an iMac.