1. Players on the 40
2. Yes
3. Promote from GM screen
4. Options are used when on the 40 and in the minors. They will burn one.
Don't worry about options. If a player is good, you won't be bouncing him back and forth between minors and BL. If a player is out of options and you don't want to keep him in the bigs next season, make sure he clears revocable waivers first. If he doesn't clear, don't promote.