Which option should I be using?
This is entirely up to you. Aside for the requirement for Shopify merchants (must use the Shopify App), you and your team will be able to determine the best format for tracking.
How do I find which variables to use for the parameters?
Each webhost will have its own set of variables that are applicable to the values needed in your FlexOffers tracking. Please check your tech support resources internally for this information.