[altz11]

Option 1 seems to be one where they only authenticate. The form doesn't say that they will mark it as altered for option 1, maybe because altering only applies when a grade is assigned?

Think about it like this...
Why would a reputable company such as BGS only grade a card as "authentic" if it were also altered? They'd be opening up a HUGE can of worms as far as their credibility and reputation in the hobby goes. Nobody would trust them, nobody would buy BGS graded cards, especially not cards that were slabbed as authentic for fear that they may be altered.
When a card is altered it needs to be disclosed to the buyer, that's the right thing and honest thing to do. That's one of the reasons why card grading, comic book grading, coin grading, toy grading etc...are in business!